Evaluation of Games Workshop and Hornby Businesses

Evaluation of Games workshop and Hornby BusinessesIn a partnership or a wrinkle, the owner would want to guess his commercial enterprise i.e. whether the communication channel is making a profit or loss and would want to compare it with other companies or its competitors in the same industry. To know the exertion of a caller-out, you need to look at more than just easily attainable numbers like gross revenue, lolly and total assets. To know the real tantrum of a company, we must be able to read between the lines of the financial statement. Hence in that respect are galore(postnominal) comparative symmetrys to identify the vividnesss and weakness of the company. These proportionalitys allow help the public (outsiders) to make decisions while investing in companies at the stock market. Ratio analysis helps us to understand the risk we must be taking. The basic source of these ratios is the companys profit and loss account and balance sheet as it contains all important in formation about the company. Financial ratios are utilitarian indicators of a firm or companys performance and financial situation.The two company ratios we are going to compare are Hornby and Games PLC. Both the companies belong to the same industry.GAMES shopEuropes foremost professional P.C. and video game retailer is Games group. It is the only company in the gaming sector to be listed on the London business Exchange. big(p) customer service and a specialist offer are at the heart of GAMES Group growth.HORNBY PLCHORNBY PLC is UKs modelling Railway manufacturer. Frank Hornby founded the company in 1901 and launched shoots until it was bought by his competitor Tri-Ang in 1964. http//en.wikipedia.org/wiki/Hornby_Railways. It is recognised for the construction of its model train sets, hobby (radio controlled cars) and toy action. It is an incorporated limited company, operating in the UK.Return on expectant Employed (ROCE).Return on Capital Employed (ROCE).ROCE = ____PBIT ___( Operating Profit)___ x 100Capital Employed (FA + CA CL)Ratio on capital employed indicated the productivity and success of a companys capital investment. According to the formula we take operating profit or PBIT and divide it by the capital employed in the business i.e. fixed asset and working capital. In the two companies, the ROCE for Games store in the year 2008 was 5.48%, 2009 was 17.26% which was begin compared to 27.98% in the year 2010. This indicates that Games workshops ROCE has incrementd which is a positive indication as the more the returns of the capital employed, its better for the firm. Whereas Hornby Plc.s ROCE in the year 2010 has fall from17.67% which was in 2009 and 29.47% in 2008 to 12.65% which is a negative sign as the return on capital employed is gauzyer than the rate at which the company borrows.Return on Sales (ROS)ROS = _PBIT_ x 100SalesROS also known as operating profit margin tell us about the companys operational proficiency. According to the f ormula, we matter operating profit or PBIT and divide it by the sales in the organisation. In the preceding(prenominal) two companies Games workshops ROS was 2.31% in 2008, 7.17% in 2009 and has increased to 12.68% in 2010. This indicates that games workshop is growing more efficiently and is more profitability. Whereas in Hornby the ROS for the year2008 was 16.85%, in 2009 was 11.20% and it decreased in 2010 to 9.27%. A decreasing ROS indicates financial trouble for the company. When we compare Hornby and Games workshop together, we get to know that Games workshop has a higher ROS which indicates a economic organisation compared to Hornby.Asset turnoverAsset turnover = ___Revenue____Capital EmployedAsset turnover is the amount of sales generated for every pound that is worth the asset. We consider the revenue of the company and divide it by the capital employed. In the above companies, the asset turnover for both the companies are low save Hornby has a lower asset turnover of 1 .36% in 2010 compared to Games workshop thats asset turnover is of 2.20%. This indicates that games workshop has a higher asset turnover which is better. This also indicates pricing strategies which the company undertakes as companies with a low price margin who have a higher asset turnover and vice versa. catamenia RatioCurrent Ratio = _Current Assets_Current LiabilitiesCurrent Ratio comes under the heading of Liquidity ratio. Liquidity means cash a business holds during the financial year. Current Ratio is a fluidity ratio which tells us the ability of the company to carry its short term obligations. Short term obligations are obligations which are under 12 months. The formula tells us that the ability to pay back short term borrowings with its short term assets. In the above case Games workshop has a higher current ratio compared to Hornby, though the difference is non that large, but still Games workshops current ratio in 2010 is 2.03% while Hornby in 2010 is 2.10%. This indic ated that Games workshop is capable to pay their obligations and vice versa. If the ratio was under 1 it would indicate that the company cannot pay its obligations.Liquidity Ratio (Acid Test Ratio)Liquidity Ratio = Current Assets StockCurrent LiabilitiesAcid testify ratio is a severe or a tough ratio which indicates whether the firm has enough short term assets to cover its immediate liability without sell out stock. The acid test ratio for Games workshop in 2008 was 0.9, in 2009 was1.14 whereas it increased in 2010 to 1.48. Hornby has a low acid test ratio in 2009 which was 0.72 but it increased to 1.37 in 2010. This indicates that Games as well as Hornby, both companies can pay off their liabilities as if the acid test ratio was less than 1 then the company has to be warned. Even if the acid test ratio is lower than the working capital ratio, it shows that the company is highly dependent on inventory.Cash RatioCash Ratio = Cash_____Current LiabilitiesCash ratio is the companys total cash balance and the cash equivalents to its current liabilities. Cash ratio is cooperative to measure the liquidity of a company. In the above case, Games workshop has a much higher cash ratio in both the years i.e. in 2009 0.57 and in 2010 it was 0.92, whereas Hornby has a very low cash ratio from 2008 which was 0.07, in 2009 it decreased to 0.02 but it increased to 0.53 in 2010. This indicates how quickly the company can pay of its creditors. Hence creditors give decide seeing the cash ratio of the company.Stock turnoverStock turnover = _COGS_StockStock turnover ratio shows how many another(prenominal) seasons over the business has sold the value of its stocks during the year. In the above case, Games workshop has a higher stock turnover than Hornby. This is because in the year 2008, Games workshop had 3.24 as its stock turnover, in 2009 it was 3.36 and it decreased I 2010 to 3.02 which is a negative point. Whereas Hornby has a lower stock turnover compared to Games wor kshop. This indicates higher the stock turnover, the better it is for the company as then money is held up for a lesser time in stocks.Stock PeriodStock Period = 365____Stock turnoverStock stop consonant is the number of days where the average money is held up in stocks. It is calculated by dividing stock turnover by 365 days. This gives the actual picture of how many days the stock is in the warehouse. In the above diagram, it shows that in the year 2008 and 2009 Games had a stock period of 113 and 109 days while Hornby had a stock period of 166 and 164 days respectively. In the year 2010 Games workshop had a stock in warehouse for 121 days while Hornby had it for 138 days. This indicates the longer the stock is in warehouse, it is bad for the business as the money is not available to be used elsewhere. Hence Hornbys stock is available for a longer period than Games workshop.debtor PeriodDebtor Period = Debtors x 365SalesDebtor period is the average number of days credit given to customers i.e. how long does it takes the company to get its money. In the above case, the debtor period for Games workshop has decreased from 33 days in 2008 to 29 in 2009 and 2010 respectively. Whereas in Hornby the debtor period has increased compared to 2008 but has decreased to 75 days compared to 2009. This indicates that a lesser number of days are good as the debtors could trust the company. But if the company takes a long time to repay, it is bad, Hence Games workshop is better than Hornby as Games workshop has lesser number of days compared to Hornby.Gearing RatioIndustry AnalysisHornby PLCThe toys and games industry has survived in the UK for 70 years but in 2009, model vehicles and outdoor games had a negative growth due to the economic recession. Customers preferred indoor games and activity construction toys since it did not require them to leave their houses, during this period. The economic downturn also caused some companies in the industry to stop business and othe rs were bought by larger companies. in that location has also been an increase in demand for moving picture based toys and video games, which are easier to produce than other toys. As such, Hasbro, Mattel and Lego are favoured for this reason. The retail outlets prefer to stock video games as a resolving power of its increase in demand and also because it takes less shelf space. The UK market is dominated presently by Husbro, which has the largest market share, Mattel and Lego.Passport GMID conventional Toys and Games United Kingdomhttp//www.portal.euromonitor.com/Portal/ResultsList.aspxHORNBY PLC is UKs Model Railway manufacturer. Frank Hornby founded the company in 1901 and launched trains until it was bought by his competitor Tri-Ang in 1964. http//en.wikipedia.org/wiki/Hornby_Railways.It is recognised for the construction of its model train sets, hobby (radio controlled cars) and toy production. It is an incorporated limited company, operating in the UK. The company has crea ted a niche market (train sets) and deals with suppliers all over the world for different railroad products. Property owners, worldwide, want to engage with Hornby, in awarding license for Hornby products because of its specialisation and popularity .The key guidance of the company is to ensure that the model railroad business succeeds, by continually dealing with supply chain issues. Research and Development is also an important factor to its success. The following companies are subsidiaries to the groupHornby Hobbies Ltd UKHornby America Inc USAHornby Espana S.A SpainHornby Italia s.r.l ItalyHornby France S.A.S FranceHornby Deutschland GmbH GermanyThere are individual targets for each subsidiary as regards growth and profit. It is monitored from time to time and based on current circumstances, forthcoming adjustments are made.http//www.hornby.com/investor-relations/Horbys CompetitorsTri-Ang Model railway producerBachmann Europe Plc Model railway producerGraFar Model railway producerModel rail UK Model railway parts builder new(a) railway Modellers Model railway builderHeywood Model Railway Group Model railway producerHasbro Board (monopoly, scrabble etc), Star Wars movie exemptionMattel Superman, Batman, Harry Potter movie franchiseLego Activity and construction gamesFun Collectibles Latest kidscrazes toys and gamesWind Designs Flying toys, yo-yos, juggling equipments and kitesMap Toys Toys and gamesRichard Edwards Card based productsRevell Model kit toysCartamundi Card gamesRavensburger Puzzles and 3D Action gamesCambridge Brainbox Educational Electronic kitsGames Workshop Tabletop fantasy and futuristic battle gamesThumbs Up Helicopters and AK 47 GunsRainbow Productions Costume character productionhttp//www.toynews-online.biz/marketplacehttp//www.holtmodelrailways.com/http//www.modelrailuk.co.uk/Homehttp//www.mcvuk.com/search/news/hornby+plcCustomersGames retail storesChildrenWholesalersMarket Contribution and ShareIn 2008, there w as a fall in interim pre-tax profits from 2.7m to 1.8m and this reduced the expected profit by December that year. Suppliers in China were challenged with the increase in labour and raw materials, therefore Hornby increased price by 10% to support China.http//www.ft.com/cms/s/0/65fd8c42-ec57-11dd-a534-0000779fd2ac.htmlAlthough sales in Europe fell by 15%, the Chief Exe constrictive was confident that Hornby would excel because of its superior hobby brand. On November 7th 2008, Hornbys shares dropped to 118.5p from the initial 300p which it maintained from the beginning of 2007.http//www.ft.com/cms/s/0/f57bef7e-ad34-11dd-971e-000077b07658.htmlaxzz14clXbHtAHornby Plc contributes to charity every year. It donated 15,354 in 2008 and 21,635 in 2009Hornbys % Breakdown of Company shares for Toys and Games in the UKCOMPANY200520062007200820092010Hornby Plc1.11.11.11.0Passport GMID Country Report Country Market Insightshttp//www.portal.euromonitor.com/Portal/Statistics.aspxFuture ForecastI n order to make profit, since the demand for video games and movie based toys have increased in the UK market, Hornby Plc should study the demand of the customers and work around producing what the customers need.There may be a problem in the future to fund research and development.Hornby Plc should be prepared for economic crisis.In 2010, the group is financially strong after a difficult trading period and there is a continuous increase in the demand for its products.Passport GMID Toys and Games United Kingdomhttp//www.portal.euromonitor.com/Portal/ResultsList.aspxHornbys China engine unstuck on dollar strengthBy David Blackwell and Maggie Urrypromulgated January 27 2009 1022 Last updated January 27 2009 1656http//www.ft.com/cms/s/0/65fd8c42-ec57-11dd-a534-0000779fd2ac.htmlHornby sees fall in outsourcing benefitsBy David BlackwellPublished November 8 2008 0200 Last updated November 8 2008 0200. Page 26http//www.ft.com/cms/s/0/f57bef7e-ad34-11dd-971e-000077b07658.htmlaxzz14clXbHt Ahttp//www.toynews-online.biz/marketplaceGames WorkshopThe Toys and Games industry in the UK is a gradually growing market, for the most part due to their largest group of customers, children around 2-10 years of age. Children often want and need toys to entertain and occupy themselves with (Competitive Context-Figure 9). Even with recession, most parents do not necessarily cut down on spending on toys for their child as they are willing to spend what little disposable income they have on their kids and buying toys that they cherished for them (MINTEL-Internal Market Environment-Figure 1).In 2007, the toys and games sector in the UK was valued at around 2.2 billion, a significant rise of 22% than when in 2003 (MINTEL- Toys and Games-UK-Nov 2008-Market in Brief A strong market in tougher times). Christmas is usually the cause of the highest booster for sales of toys and games, bringing in half the total number sales in a year (MINTEL-Internal Market Environment-Key Points).Games Wo rkshop PLCIn 1975, Games Workshop PLC, was established in London by John Peake, Ian Livingstone, and Steve Jackson. It was listed in the London Stock Exchange in 1994. The company has since moved its headquarters to Nottingham. Games Workshop is mainly involved in producing and retailing games and toys ( elucidations). The company started off with producing board games made of wood (eg. Backgammon), moved on to importing role-playing games (RPGs) from the United States and finally to where it is today, a toy and games producer, publisher and retailer. Games Workshop is well-known in the market for its collectible miniatures (toy soldiers) used in its role-playing and table-top wargames (WIKIPEDIA). Its specialty and focus is on collectible toy models targeting toy collectors and hobbyist whose favourite pastime is collecting toy models. Games Workshop has several subsidiaries, they includeBL PublishingPublishes literature and gaming materials castle MiniaturesProduces toy miniatures collections for collectors and hobbyistForge WorldProduces higher quality models for their role-playing and table-top wargamesSabertooth GamesProduces card games related to their role-playing and table-top wargames produced(Wiki Games Workshop http//warhammeronline.wikia.com/wiki/Games_WorkshopSubsidiaries)CompetitorsHasbro U.K. Limited intense Toy Group LimitedVivid Imaginations LimitedGames Workshop LimitedHornby PLCFlair Leisure Products PLCHornby Hobbies LimitedDatel Electronics LimitedRockstar North LimitedHardy Greys LimitedFrom FAME (https//fame.bvdep.com/version-2010823/cgi/template.dll?checkathens=1kick=1 product=1user=lingd%40coventry.ac.ukpw=D341XryjGFEL77TgmOwhnA%3d%3d)CustomersCollectors Hobbyist of their miniature games collectionTeenagersYoung AdultsGlobal customersMarket Contribution ShareIn 2009, Games Workshop wanted to cut cost and initiated a move to use shaping instead of metal for the production of their toy and games miniatures. It was an apparently well- accepted change by their customers as sales rose from 110.3m to 113.9m in 2009.http//www.ft.com/cms/s/0/719b6d28-7bbb-11de-9772-00144feabdc0.htmlIn 2009, Games Workshop opened 10 new stores in the UK which are run by a single staff, making it easier for them to expand to smaller towns and hence more kind to their teenage fans. These additional stores will boost Games Workshops market presence.As at January 2010, Games Workshop has expanded operations overseas to Europe, North America, japan and Australia. However, market analysts cerebrate that the company has potential to expand to other untapped markets.In January 2010, when Games Workshop revealed that its profit before tax achieved would surpass expectations by at least 50 percent, shares increased by 30 per cent to 333.85p. Profit before tax was initially estimated to be around 9m as at 30 May 2010 but in January 2010, it was expected to grow by another 5m or more by May 2010. Games Workshops gross margins have increased as a result of their cost cutting measures undertaken in 2009.http//www.ft.com/cms/s/0/afb932a0-fade-11de-94d8-00144feab49a,s01=1.htmlFuture ForecastGames Workshop PLC should try to be more creative and innovative, launching new products endlessly over the year, in order to increase sales and spread sales more evenly over the year than garnering the majority of sales only during the Christmas season.As mentioned earlier, market analyst believe that Games Workshop has the potential and capability required to further expand overseas, probably to untapped markets, such as Asia (with the exception of Japan where they already have expanded to).Furthermore, the market for toys and games are continuously increasing and expected to carry on growing in the future (internal market environment-is childhood getting shorter?). Sales recorded for toys and games have also been rising over the years and expected to continue doing so. (Market Re-forecasts-Household-UK-March 2009-Toys and Games). In th e case of Games Workshop, although there was a slight drop in sales for the company in 2007, it has since been steadily increasing over the last couple of years. This could be due to the fact that Games Workshop builds up customer loyalty by offering collectibles that interested customers can only buy from the company if they want the complete collection. The excellent after-sales service provided by the company could be another factor that enabled them to earn loyalty from their customers. This is an invaluable asset to the Games Workshop as no matter what new products they offer, most of their loyal customers will support them by purchasing their products. As long as the company continues to successfully retain its customer loyalty, it will go a long way.It is all important(p) for Games Workshop to constantly update themselves on the current trends and threats faced by the toys and games industry, and act accordingly by coming up with suitable strategies to ensure that the busine ss stays profitable and hopefully gain a larger market share.Conclusion and Recommendations