a) What are the strong and weak areas of operations of the companies based on the

last two years analysis?

Shoppers Stop has been very aggressive in their expansion with their debt-to-equity
ratios hovering around 10 over the past two years whereas for Trent it has been around 2
indicating a conservative approach to business.
Being retail businesses, inventory turnover ratios are a key parameter for measuring
operational performance for both the companies. For Trent the ratio is around 2.6
whereas for Shoppers Stop it is 6 which is way better.
The Net Operating Profit after Tax (NOPAT) for a company defines the quality of its
earnings. NOPAT for Shoppers Stop is Rs. 81.6 Crores whereas for Trent it is Rs. 23
Crores only. Due to higher finance costs, Shoppers Stops total profit after tax is reduced
to 40.7 crores whereas Trent has higher profit after tax of 100 crores on account of
exceptional items (56 crores before tax). From operation point of view, Shoppers Stop
has a higher quality of earning compared to Trent.

b) Between the companies which company is better and why? (say in terms of lending
money or investing in the equity or being employed)
Debt to Equity ratio of Shoppers Stop is very high so the investment is very risky for
creditors compared to Trent. Since Shoppers Stop is aggressively expanding, it is an
attractive proposition for an equity investor. Shoppers Stop has been consistently
providing Return on Equity of around 5% whereas Trent has higher Return on Equity of
7% due to exceptional items in 2014-15. This makes Shoppers Stop a less risky
proposition from equity investor point of view.
c) Identify which company is not good in relative terms between the companies (you
should have ONLY ONE choice). Assume you have taken over as CFO of the
company today and the CEO is asking your suggestion for improving the
performance of the company. By comparing the performance two companies, you
are expected to identify clearly the areas that your company has to concentrate to
improve its performance. Avoid writing anything based on general perception
about the company and all your recommendation should be based on facts and
figures drawn ONLY from Balance Sheet and P&L account Ratios
Performance of Tata Trent is not good in relation to that of Shoppers Stop.
Comparing the inventory turnover ratio, Tata Trent has to improve on the inventory
management in order to achieve optimum inventory levels for sales.
Comparing financial assets with operational assets, Tata Trent should invest more in
operations activity compared to financial activity in order to achieve better operational
performance.
d) Your groups key learning in doing this assignment it need not be company
specific but rather more financial statement analysis specific.

Learning about the various methods of financial statement analysis has enabled us to
evaluate the performance of a business in a better way.
Rather than focussing on the surface data like Profit and Revenue, we have realized the
importance of looking deeper into the data provided by the companies to gauge their
financial credibility and market sustainability.
The operating revenue, cash flow from operations and its credit standing in terms of
solvency ratios helps to realize the true financial performance of the company.