Evaluation of Games Workshop and Hornby Businesses

Evaluation of Games workshop and Hornby BusinessesIn a connection or a argument, the owner would want to tax his business i.e. whether the business is making a net or deprivation and would want to comp be it with other companies or its competitors in the same perseverance. To live the performance of a company, you need to look at to a greater extent(prenominal)(prenominal) than provided easily attainable numbers like gross revenue, profits and total additions. To get it on the real picture of a company, we must be able to show between the lines of the monetary statement. Hence there are many relative dimensions to identify the strengths and weakness of the company. These ratios give help the public ( placesiders) to make decisions bandage investing in companies at the stock market place. proportion 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 al l primary(prenominal) information about the company. Financial ratios are useful indicators of a steady or companys performance and financial situation.The two company ratios we are hardlyton to compare are Hornby and Games PLC. Both the companies be yearn to the same industry.GAMES WORKSHOPatomic number 63s fore just about professional P.C. and video game retailer is Games mathematical group. It is the scarcely company in the gaming sector to be listed on the capital of the United Kingdom rakehell Exchange. p for each oney customer service and a specialist offer are at the heart of GAMES Group growth.HORNBY PLCHORNBY PLC is UKs computer simulation Railway manufacturer. Frank Hornby founded the company in 1901 and launched asks 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 molding train sets, hobby (radio controlled cars) and recreate production. It is an incorporated limi ted company, operating in the UK. refurbishment on Capital employed (ROCE).Return on Capital Employed (ROCE).ROCE = ____PBIT ___(Operating Profit)___ x 100Capital Employed (FA + CA CL)Ratio on pileus employed indicated the productivity and success of a companys capital investment. harmonize to the formula we take operating profit or PBIT and tell apart it by the capital employed in the business i.e. fixed asset and exertionings capital. In the two companies, the ROCE for Games shop class in the form 2008 was 5.48%, 2009 was 17.26% which was lower compared to 27.98% in the year 2010. This indicates that Games shop classs ROCE has increase which is a positive sign as the more the returns of the capital employed, its punter for the firm. Whereas Hornby Plc.s ROCE in the year 2010 has decreased from17.67% which was in 2009 and 29.47% in 2008 to 12.65% which is a veto sign as the return on capital employed is lesser 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 operating(a) proficiency. According to the formula, we consider operating profit or PBIT and divide it by the sales in the organisation. In the in a higher place two companies Games shops ROS was 2.31% in 2008, 7.17% in 2009 and has change magnitude to 12.68% in 2010. This indicates that games shop 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 high ROS which indicates a profitable organisation compared to Hornby. asset disorderAsset turn everyplace = ___Revenue____Capital EmployedAsset turnover is the amount of sales generated for e real pound that is worth the asset. We consider the revenue of the company and divi de it by the capital employed. In the above companies, the asset turnover for some(prenominal) the companies are low simply 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. underway Ratio latest Ratio = _Current Assets_Current LiabilitiesCurrent Ratio comes under the heading of Liquidity ratio. Liquidity government agency cash a business holds during the financial year. Current Ratio is a liquidity ratio which tells us the ability of the company to pay its con confines 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 hig her up-to-date ratio compared to Hornby, though the difference is not that large, merely still Games workshops current ratio in 2010 is 2.03% epoch Hornby in 2010 is 2.10%. This indicated 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 lineageCurrent LiabilitiesAcid test ratio is a severe or a tough ratio which indicates whether the firm has sufficiency short term assets to cover its immediate liability without selling out stock. The acidulous test ratio for Games workshop in 2008 was 0.9, in 2009 was1.14 whereas it increase 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 t he acid test ratio is lower than the working capital ratio, it shows that the company is exceedingly 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 helpful 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 allow decide seeing the cash ratio of the company.Stock turnoverStock turnover = _COGS_StockStock turnover ratio shows how many measure 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 works hop 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 workshop. This indicates higher the stock turnover, the better it is for the company as then gold is held up for a lesser time in stocks.Stock percentage pointStock Period = 365____Stock turnoverStock period is the number of age where the average capital is held up in stocks. It is calculated by dividing stock turnover by 365 old age. 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 obtainable to be used el sewhere. 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 outlineHornby PLCThe toys and games industry has survived in the UK for 70 years but in 2009, vex vehicles and outdoor games had a negative growth due to the frugal recession. Customers preferable indoor games and a ctivity construction toys since it did not require them to leave their houses, during this period. The economic startturn also caused some companies in the industry to stop business and others were bought by larger companies.There has also been an increase in charter for photograph base 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 result of its increase in get hold of and also because it takes less ledge space. The UK market is dominated presently by Husbro, which has the largest market share, Mattel and Lego.Passport GMID handed-down Toys and Games United Kingdomhttp//www.portal.euromonitor.com/Portal/ResultsList.aspxHORNBY PLC is UKs pretense 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 get train sets, hobby (radio controlled cars) and toy production. It is an incorporated limited company, operating in the UK. The company has created a niche market (train sets) and deals with suppliers all over the realism for different railroad products. Property owners, worldwide, want to engage with Hornby, in prize license for Hornby products because of its specialisation and popularity .The key focus of the company is to ensure that the model railway business succeeds, by continually dealing with supply mountain 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, future 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 builderNew railway Modellers Model railway builderHeywood Model Railway Group Model railway producerHasbro Board (monopoly, scrabble etc), Star Wars movie enfranchisementMattel Superman, Batman, Harry Potter movie franchiseLego Activity and construction games sportswoman 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 shop Tabletop fantasy and futuristic battle gamesThumbs Up Helicopters and AK 47 GunsRainbow Productions fit out character productionhttp//www.toynews-online.biz/marketplacehttp//www.holtmod elrailways.com/http//www.modelrailuk.co.uk/Homehttp//www.mcvuk.com/search/news/hornby+plcCustomersGames retail storesChildrenWholesalersMarket Contribution and parcel outIn 2008, there was a finalize in interim pre-tax profits from 2.7m to 1.8m and this reduced the anticipate profit by December that year. Suppliers in China were challenged with the increase in labour and unsanded 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 Executive was confident that Hornby would excel because of its quality hobby brand. On November 7th 2008, Hornbys shares surrenderped 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 liberality every year. It donated 15,354 in 2008 and 21,635 in 2009Hornbys % Breakdown of Company shares for Toys and Games in the UK beau monde200520062007200820092010Hornby Plc1.11.11.11.0Passport GMID Country Report Country Market Insightshttp//www.portal.euromonitor.com/Portal/Statistics.aspx up glide path ForecastIn 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 some 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 art 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 undone on dollar strengthBy David Blackwell and Maggie UrryPublished January 27 2009 1022 Last updated January 27 2009 1656http//www.ft.com/cms/s/0/65fd8c42-ec57-11dd-a534-0000779fd2ac.htmlHor nby 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.htmlaxzz14clXbHtAhttp//www.toynews-online.biz/marketplaceGames shopThe Toys and Games industry in the UK is a gradually growing market, mostly due to their largest group of customers, children around 2-10 years of age. Children often want and need toys to entertain and beguile 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 free to spend what little disposable income they have on their kids and buying toys that they treasured 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 shortened A strong market in tougher t imes). Christmas is usually the cause of the highest shoplifter for sales of toys and games, bringing in half the total number sales in a year (MINTEL-Internal Market Environment-Key Points).Games shop 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 propeld its headquarters to Nottingham. Games Workshop is mainly involved in producing and retailing games and toys (miniatures). The company started off with producing come along games made of wood (eg. Backgammon), moved on to importing role-playing games (RPGs) from the United States and eventually to where it is today, a toy and games producer, publisher and retailer. Games Workshop is well-known in the market for its due 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 materialsCitadel MiniaturesProduces toy miniatures collections for collectors and hobbyistForge WorldProduces higher quality models for their role-playing and table-top wargamesSabertooth GamesProduces card games think to their role-playing and table-top wargames produced(Wiki Games Workshop http//warhammeronline.wikia.com/wiki/Games_WorkshopSubsidiaries)CompetitorsHasbro U.K. check natural 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 plastic instead of metal for the production of their toy and games miniatures. It was an ostensibly 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 throw a fit to smaller towns and hence more accessible to their teenage fans. These additional stores will boost Games Workshops market presence.As at January 2010, Games Workshop has spread out trading operations overseas to Europe, North America, Japan and Australia. However, market analysts believe that the company has voltage to expand to other untapped markets.In January 2010, when Games Workshop revealed that its profit earlier 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.html forthcoming ForecastGames Workshop PLC should try to be more creative and innovative, open up new products constantly over the year, in order to increase sales and spread sales more evenly over the year than garnering the bulk 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 the 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 cruci al 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 business stays profitable and hopefully gain a larger market share.Conclusion and Recommendations