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Dixons 2012 Annual Report Financial Analysis - Basic

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Dixons Retail’s overall performance compared to its industry average 1. Gross profit margin  Dixons Retails 2012 Gross profit margin: 6.6%  Industry average: 15% Gross profit margin measure the business profitability in buying and selling goods and services. The above data shows that Dixons Gross profit margin is less than half of the industry average, almost flat YoY (+0.2% vs 2011). In order to properly assess company performance it would have been useful knowing which Gross profit margin target the business has set for 2012 as well as for 2011. The fact that the ratio is flat YoY could be due to a failure in improving the business profitability through an increase of sales revenue and/or a decrease of cost of sales or could be the outcome of: 1. A medium-long term strategic decision aimed to sacrifice the gross profit margin in order to provide business with resources to implement the customer centric approach combined with an aggressive pricing policy. 2. Company could be “buying” market share or forcing out competitors Looking at the average industry ratio it’s obvious that some of Dixons’ competitors are running their business incurring in lower cost of sales and/or selling goods at higher prices, and Dixons’ performance is really poor compared to that average. But what we don’t know are information about customer relationship for each of Dixons’ competitors, such as the number of customers, customer retention and satisfaction. What we do knowis that their ambitious all-round customer centric approach requires heavy investments in human resources - to meet/exceed customer expectations - and a very competitive pricing policy to deliver the “price match” promise to customers. 2. Current ratio  Dixons Retails 2012 Current ratio: 0.83 times  Industry average: 2.05 times Current ratio measures the ability of the business to meet its short term financial obligations. Dixons’ ratio is considerably lower than the industry average - despite a7% increase YoY - and...

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