Investment Analysis: Sports Direct vs. JJB Sports - Essay Example

Increase in taxes is another reason why the company’s performance in terms of EPS. P/E is also another very important measure to assess the company’s shares in terms of their earning potential. In the case of Sports Direct, 2010 P/E ratio could not be calculated because the historical market price was not available in the financial statements. In 2011, the company was able to earn the P/E ratio of 19.5. This means that investors are needed to invest €19.5 in the company for every €1 of earning.

The ratio is quite high and looking at this measure it looks like that the stock is trading at a very high price and therefore investors should only invest in the shares of the company once the price of the stock comes down. The company paid out around 8.33% of its earning as dividend in the fiscal year 2010. However, the company did not pay any dividend in the FY 2011. This is in line with the company’s objective of growth. Since, the company wants to expand it needs more money and as a result it has cut down the dividends on shares in order to finance its expansion.

As a result we see that Dividend per share ratio has also come down from around 6.94% to 0%. The company is cutting down on dividends in order to finance its growth. Another ratio that shows that the company is conservative in its approach of paying dividends is the dividend cover ratio. The company’s ratio in the FY 2010 was 226.7x. It declined to 0x in the year FY 2011. This means that in FY 2010, Sports Direct was paying €1 in dividends for every €227 of earnings. However, it has come down to 0 because the company wants to grow and it needs the money of the shareholders.

Investment Ratios for JJB Sports: Figure 2: Investment Ratio Summary for JJB Sports for the Years FY 2010, FY 2011 Figure 2 clearly shows that JJB Sports had two very bad years in terms of investment ratios. The company could not make any profit in these two years. As a result EPS figures for FY 2010 and FY 2011 remained negative. However, the magnitude of loss increased in the FY 2011 which is reflected by a bigger negative EPS number in the FY 2011. Loss per Share in the year 2010 was around €20.

It increased to almost €62 per share in the Fiscal Year 2011. Again it was impossible to calculate the P/E ratio of JJB Sports for the years 2010 because the historical market price data was not available on the internet and it wasn’t even available on the financial statements. The company P/E ratio for the FY 2011 wasn’t good either. The company secured a negative P/E ratio which is meaningless. Since, company made a loss in the FY 2010, the payout ratio was negative. It means that the company used its previous earning reserved to pay €54,000 worth of dividends.

This was done to appease the shareholders who might be fuming over the company’s policies and loss making. DPS remaining extremely low in the year 2010 and it declined to 0 in the year 2011. This is due to the fact that company was making losses and even it Cash flow activities showed negative results. Other than that, the company’s dividend cover is also negative because of its inability to pay decent amount of dividends which has resulted in a very high negative number for Dividend cover.

In 2011, the ratio is 0 because of the inability of the company to pay any dividends. All in all the company is in crises and investors should not invest in the company because they have a high chance of losing their money in JJB