Want help to write your Essay or Assignments? Click here
Acquisition Planning
In this case study acquisition would be an appropriate option because the supply and demand calculations to determine the company equilibrium both in short-run as well as long-run shown that acquisition is a favorable option, and it is essential for the effective measures or interventions to be implemented. This is due to the fact that, this approach is highly imperative to ensure that the company maintains its competitiveness in the market (Andreyeva, Long & Brownell, 2014).
As a result, increased capital investment in R&D in order to come up with high quality methods and procedures in the Bio Sensor Virus Detector (BSVD) program is highly encouraged. This calls for the need for the company to embark on a continuous and an aggressive process of making sure that there is a consistent improvement of the quality of its products and methods (Saito, 2013). This is a vital consideration with regards to the federal government directive in 2010, in which GAO was given the mandate to conduct an examination of how civilian agencies were undertaking their acquisition planning for services contracts (Saito, 2013).
Want help to write your Essay or Assignments? Click here
In particular, there was a concern on the extent of spending by these agencies in terms of acquisition planning with respect to professional, management and administration to support these services (Saito, 2013). As a result, there was a recommendation for these challenges to be resolved through an elaborate acquisition planning procedure including: cost estimation, written acquisition plans, as well as incorporation of requirements development (Andreyeva, Long & Brownell, 2014).
Thus, it is clearly evident that these elements are critical for planning, and acquisition planning ought to be closely aligned with elements stipulated in the FAR. Finally, the case study reveals the need to adopt several practices in attempts towards curbing the identified limitations including hiring personnel who have procurement specialization, especially with regards to business issues and cost and price analysis as a key strategy towards providing a guideline in helping to prepare key documents concerned with acquisition planning.
References
Andreyeva, T., Long, M. W., & Brownell, K. D. (2014). The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food. American Journal of Public Health, 100(2), 216-222. doi:10.2105/AJPH.2008.151415.
Want help to write your Essay or Assignments? Click here
The Impact of Brexit on the UK and the EU’s financial regulation
Introduction
The 1999 EU regulatory initiatives were meant to ensure that there were maximum financial markets activities among member countries. The regulations were also meant to contribute to the removal of existing legal barriers in the financial sector among EU members. The cross-border financial market initiative benefitted the UK and contributed to an increase in trade in the sector. However, Brexit’s move on 23rd June 2016 might have resulted in an end to the many of the financial conveniences that the UK enjoyed (Grant Thorton, 2016).
According to Wellink (2009: 13), and World Bank (2013: 15), regulatory arbitrage is one of the greatest disadvantages that can emerge from an exit of a country from a Union with existing guidelines and policies. According to Wen (2016), there is a possibility of businesses undercutting each other if the current financial market is deregulated. Brexit might contribute to deregulation of the UK’s financial sector, therefore contributing to undercutting of some firms through unscrupulous dealers. Some of the firms that have their headquarters in the region might initiate planning on moving to other regions that they consider favourable; especially those within the European Union coverage.
Institutions in the global financial market will be affected to great lengths as a result of Brexit. Institutions that are directly related to the UK or the European Union might have to “revise” the location of their headquarters or location of their subsidiaries. The adjustments are necessary for the firms to survive in the market. Brexit has a major impact on financial firms because the sector is strictly regulated, and might contribute to challenges especially for UK firms.
Impact and challenge of Brexit on the UK’s financial sector regulation
According to Claessens and Kodres (2014: 78), regulation of the financial sector contributes to securing of firms so that the shareholders’ wealth is maximized. The UK financial institutions will have to meet the requirements of strict regulations which emanate from Brussels. Before Brexit, the UK might have had an upper hand in negotiating for strict financial regulations such as their refusal on the imposition of tax bonuses. However, the EU might want to use them (UK) as an example of the disadvantages that countries are bound to face when they exist the EU.
The regulatory arbitrage for the UK might have complex consequences since some of the financial sector regulations for the UK and EU are different. The UK might have more strict rules in comparison to those that are issued by the EU. The EU might have less stringent rules based on the need to accommodate many different members who have different backgrounds.
The UK has been part of the EU for over forty years, and most of its financial sector laws are based on policies in the EU regulations. Therefore, Brexit could contribute to instability of the UK banking system since most of the financial regulations that have been in use, have not been enshrined in the UK law for the forty years that the country has been a member of the EU. The effects from pass porting will determine the future of the financial sector for the UK. It is not all gloom for the UK’s financial sector after Brexit since the country will attain independence to make its own decisions in the sector.
Any loopholes that might be used by firms for arbitrage purposes should be identified and sealed so as to minimize any chances of illegal activities. Banker bonus cap has been raised as one of the areas that the bank of England and the European Parliament discussed as possibly contributing to financial regulation arbitrage.
There will be immediate need of business continuous amidst the new and old regulations, or lack of clarity in the regulations that should be applied. Existing international financial firms that are located in the UK will have to make decisions on the viability of their current location. If the firms decide on a new location within the EU, they will have to make assessments on the suitability of a location that will contribute to a high level of business.
The short duration of confusion might lead to loss of business for some international firms. Financial firms in the UK will also have to ensure that they follow the MIFD II rules that will be established in 2018. The UK’s economy will be negatively impacted by a move of the financial firms that will want to relocate especially from London. Most of the international firms owned by EU member countries might want to relocate to other capital cities within the EU in order to make maximum gains.
The UK owned financial firms that have been conducting business in the EU will face higher costs and double rules if they will continue trading within the EU (Ashurst, 2016: 4). The low costs and EU financial regulation rules will no longer be accessible to those firms. Companies in the UK will also face stringent measures as required by the European Commission and the UK in the acquisition of partners from the EU.
The regulatory authorities in the UK are likely to increase the sector’s interest rates so as to make up on the deficit from being charged high rates through trade involving the EU. Clients will consider financial firms in the UK as being less stable as compared to those in the EU. Therefore, the clients might ask for higher returns on their investment based on the higher level of risk.
Financial firms will in turn have to invest in projects that have a high return, but take a long duration to give the expected profit on the investment made. The regulation of the financial sector institutions and supervision is largely national, even if the country is a member of a larger body (Omarova, 2010: 665: International Monetary Fund, 2009).
Evaluation of UK and EU’s financial regulation
The EU is quite strict on “bailing out” of companies since it results in the depression of the economy. Funds that could have been injected into projects contributing to the development of the economy, or boosting the economy are put into several companies that might not have a major positive impact on the economy (Heath, 2013: 32). Bailing out of companies by the government might contribute to lowering of ethical standards in companies.
The companies would know that the government would bail them out in the event that they collapsed. UK based financial companies are bound to face strict regulation especially since clients are likely to demand higher returns based on the higher level of risk. The EU is viewed as contributing to stability among its member states, and therefore making transactions that they engage in safer and more likely to give the planned return.
Want help to write your Essay or Assignments? Click here
The consequence arbitrage that has resulted from Brexit is highly influenced by non-financial effects of the initiative. The UK is no longer being considered as a major stakeholder in the making of foreign policies that might be required in times of conflict. Therefore, the UK has less bargaining power if it requires making deals with other countries. It is critical for a country to have a high bargaining power so as to negotiate trade and profitable financial agreements for its institutions (Weil, Fung, Graham, and Fagotta, 2006: 68).
The consequence arbitrage is the exit of major international financial institutions from London to other European Union capital centres. International financial organizations such as banks have already operated in the European Union and in the EU for decades. The move will contribute to the undoing of many years work, since the UK government has made numerous deals to bring the firms into the country (Ashurst, 2016: 4). Governments usually have to spend reasonable resources and adjust their regulations so as to be attractive to investors from foreign organizations.
Many other countries usually compete for the foreign firms. Therefore, countries have to ensure that their package offers are as friendly as possible. Furthermore, a financial Maginot line is necessary to deal with any eventualities that might arise such as collapsing of hedge funds. A hedge fund with a large volume of deposits could collapse and contribute to the collapse of banks in the region. The collapse or discovery of missing funds in a hedge fund could be triggered by sudden national financial moves such as the one triggered by Brexit.
Clearing houses might also contribute to negative consequences in the financial sector. According to Wen (2016: 9), clearing houses deals defaulting by a few traders can contribute to the system’s collapse. The collapse would result from the system’s insolvency. The central banks in different nations oversee the financial systems of those countries. However, there is no institution to oversee the central banks of different countries.
In the event of a collapse of the central banks of the countries involved in Brexit, there would be a collapse of all other financial institutions in involved nations. Financial regulatory organizations are focused on maintaining the regulations in place, especially because of the hefty fines that have been put in place. Therefore, in the event that the central bank was collapsing, it might take time for signs to be recognized by the financial firms that are the major focus of regulation.
Want help to write your Essay or Assignments? Click here
4.0 Conclusion
If it would not make the UK appear inconsistent, I would recommend a return to the European Union. However, since the decision and necessary steps have already been taken, the UK has to make do with its current situation. The UK has to establish clear guidelines in its financial sector since it has mostly used those in the European Union for about forty years. The opportunity should be utilized in coming up with financial sector regulations that will promote growth and have a competitive edge over countries in the European Union.
The regulatory authorities in the UK are likely to increase the sector’s interest rates so as to make up on the deficit from being charged high rates through trade involving the EU. However, the UK will have to come up with clear financial policies so as to mitigate the occurrence of a crisis. In the past, there has been severe and a high level of frequency of financial crisis that have occurred across the globe. The regulation and supervising of firms in the financial sector of a country is largely a national responsibility.
Both regulation and consequence arbitrage results are likely to be experienced by countries in the UK due to its exit from the European Union. There are international banks that have been situated in the UK for a long duration. These firms might have to relocate to other geographical locations in the EU so that they can continue enjoying the same regulations that they are used, especially if their parent firms are located in Europe (Ashurst, 2016: 6).
The geographical move would result in loss of revenue and employment for many UK nationals. Financial firms in the UK would be motivated to move because they would be expected to comply with a double regulation of the financial sector in EU, and that of the UK. Clearing houses could also contribute to a major collapse of the financial sector as a consequence of a failure of payment by a few dealers especially if they trade in high volumes. The solution to the possible loopholes that might occur is strict regulation of the financial sector for both the UK and EU.
Bibliography
Ashurst, 2016, Brexit: potential impact on the UK’s banking industry. Ashurst.
Claessens, S. and Kodres, L. 2014, The Regulatory Responses to the Global Financial Crisis: Some Uncomfortable Questions, IMF Working paper.
Heath, R., 2013, “Why Are the G-20 Data Gaps Initiative and the SDDS Plus Relevant for Financial Stability Analysis?” IMF Working Paper 13/6 (Washington: International Monetary Fund).
International Monetary Fund, 2009, “Restarting Securitization Markets: Policy Proposals and Pitfalls,” Chapter 2 in the Global Financial Stability Report (Washington: International Monetary Fund).
Omarova, Saule T., 2010, “Rethinking the Future of Self-Regulation in the Financial Industry,” Brooklyn Journal of International Law, 35, (3): 665.
Weil, D., Fung, A., Graham, M., and Fagotta, E. 2006, “The Effectiveness of Regulatory Disclosure Policies,” Journal of Policy Analysis and Management, Vol. 25, No. 1, pp. 155-81.
Want help to write your Essay or Assignments? Click here
Return on Equity: Financial Statement Interpretation
Volkswagen
The German automobile company was created in 1937 under the Volkswagen group of companies and is recognized as one of the top-selling automakers in the entire world. In fact, it is considered to be the second largest automobile manufacturing company in the automotive industry. As such, three of its products are in the top ten of bestselling cars. Better still, the company recorded $244.985 billion in revenues as of 2014. With a workforce of 588,902 employees and $424.982 billion in total assets, the company generated $13.393 billion profits (Morrow, 2016).
The company has focused its primary goal to double its market share in the United States. Through this, the firm would be focusing on its vision of becoming the world’s largest manufacturer of automobiles by the year 2018. In keeping faithful to this vision, they are expanding to bigger markets with the major ones being Germany and China (Morrow, 2016).
Return on Equity
Return on equity checks the return on the shareholders’ equity. In simpler terms, it measures the firm’s efficiency in earning profits from every unit of the shareholder’s equity. This means that a company needs to invest funds in an appropriate manner for them to get growth in their earnings. It is essential to note that measuring consistent margins in earnings per share does not sufficiently explain the performance. Therefore, Return on equity serves to be the best profitability ratio in measuring efficiency in performance. In this case, Volkswagen’s Return on equity ROE using the Du Point analysis for the last two years would be;
ROE using the DuPont method = (net income/revenue) * (income/assets) * (assets/equity)
High return on equity mean that firms are not capital intensive. However, even if there are high returns with leverage in 2016, there is still a solid balance sheet. This means that the firm has utilized little of its capital this year on income-generating investing as opposed to 2015. All in all, it is critical to invest in firms with high Return on equity as they fluctuate due to company earnings or cycles when looking at long-term investments. For that reason, investors should look at investing in this year’s company ventures for them to get high returns.
Want help to write your Essay or Assignments? Click here
Microsoft
Microsoft is an American technology company that deals with the manufacture and distribution of computer software, electronics, as well as services. It is also recognized as the world’s largest software company and the most valuable. Founded in 1975, the company had its headquarters in Washington and recorded a revenue of $93.58 billion by 2015. It is also noted that the company has produced billionaires and millionaires from its 118,584 employees. More so, the firm is known to register high profits with a net income of $12.19 in 2015. As such, the company continues to grow to be a major player in the computer and electronics industry.
Return on Equity
ROE using the DuPont method = (net income/revenue) * (revenues/assets) * (assets/equity)
As stated earlier, firms that have registered high ROE often generate more cash rather than investing it. Even though, higher Return on equity show that the company is making good use of their equity in making more income, they are not exhausting their full potential in investments. In this case, Microsoft’s 2015’s Return on equity is lower than in 2014 by 9.36%. This means that they have been investing more rather than making profits. As a result, their balance sheet is not rigid since cash is always flowing in and out of investments. Better still, the higher rates of ROE show that the company is making good use of efficiency in utilizing their capital or shareholders’ equity in generating more income.
Walmart
In the same sense as Microsoft, Walmart is an American company but classified under the retail industry where it manages hypermarkets, departmental stores, and groceries. The firm has grown to establish 11,543 stores in 28 countries with its main operations being in the United States and Canada. The company has a registered revenue of $482.13 billion by 2016 thereby being recognized as the world’s largest firm by revenue. The family-owned business is also the most valuable enterprise through its attractive market value.
Being the biggest grocery retailer in the United States, its net income adds up to $14.694 billion even though it has employed 2.2 million people in all its global branches. However, it struggles to get a bigger market share by venturing into the growing and emerging Chinese and another Asian market. Also, they set low prices for their products in order to get a large customer base. Additionally, since the business is the biggest private employer in the United States, its turnover rate significantly affects the unemployment rates. In the same regard, they have faced numerous charges ranging from lawsuits to labor strikes.
Want help to write your Essay or Assignments? Click here
Return on Equity
ROE using the DuPont method = (net income/revenue) * (income/assets) * (assets/equity)
Businesses that have higher returns on equity are focused on protecting their net income in facing the competition. This is so since they generate more income with little need of reinvesting it yet they have the ability to increase their business value. Still, higher Return on equity means having good business value since the stock prices will appreciate in a bid to trade with the firm’s growing value.
But, is having more shares worthwhile than investing the gained income? In the above recordings, it is clear that Walmart is making god use of their shareholders’ equity in generating more income for the business. However, the generated income is to place the company at the top of their rivals and in the stock market. Fortunately, the Return on equity decreased from 20.10% in 2015 to 18.24% in 2016 due to further reinvestment of their gained earnings.
From the above statistics, it is clear that both Microsoft and Walmart understand the importance of reinvesting their income in profitable ventures rather than having a solid balance sheet. On the other hand, Volkswagen is increasing their Return on equity perhaps to recapture their market position. The firm might also have decided not to reinvest their earnings probably to increase their value and better trading stocks in the stock market.
Company Analysis
Current Ratio
The current ratio measures a organization’s ability to offset its short-term debts or meeting its obligations. It gives the efficiency of a company’s operations to turn the product into cash. This is understood through the fact that businesses that are unable to pay their short-term debts often have liquidity problems.
It is given as; Total current liabilities/total current liabilities
For the first quarter in 2016;
Volkswagen – 179895.323/177672.61 = 1.01
Walmart – 59097/70282 = 0.84
Microsoft – 128421/44354 = 2.90
(Financials are given in millions)
The higher the ratio is, the more likely a company is able to pay its short-term debt. Therefore, a current ratio that is under 1 means that the establishment is having difficulties in paying off its obligations. Even though this is an indication the firm is not in good financial vigor, it does not inevitably mean that they will go broke (Christensen, Baker & Cottrell, 2014).
This means that Walmart’s first quarter performance is not good since they are having difficulties paying off their short-term debt. However, if the company has satisfying long-term projections, it may be able to borrow and pay off its obligations. In the same sense, Microsoft proves to be most efficient in paying off its short-term liabilities compared to the rest.
Quick Ratio
Though almost similar to current ratios, quick ratios show the practice’s ability to meet its short-term debt through its most liquid assets such as cash. As a result, inventories are excluded since they are less liquid.
For that reason, it is given through;
(Total current assets – portfolio)/ total current liabilities
Generally, a low quick ratio is an indication that a company is over-leveraged or is finding it hard to increase its sales, pay bills or is collecting their income slowly. From the other perspective, a higher quick ratio shows that a business is able to meet its financial obligations (Christensen, Baker & Cottrell, 2014). As such, they often have a faster inventory with fast conversion cash cycles. In this regard, Both Volkswagen and Walmart and struggling to meet their financial obligations. They cannot fully pay their current debt. Conversely, Microsoft shows good financial strength in its short term.
Net Profit Margin
Net margin is often used in assessing a company’s profitability and value estimation but is not entirely reliable. This is so because they can be easily manipulated by changing the methods of depreciation or altering the standard accounting practices. They are given through;
Net profit margin – net income/revenue
For the first quarter in 2016;
Volkswagen – 2630.290/56752.784 = 4.63
Walmart – 3079/115904 = 2.66
Microsoft – 3756/20531 = 18.29
(Financials are given in millions)
In this case, Microsoft company is the most profitable firm in the sense has it has the highest net profit margin with Walmart having the least profit margin. Microsoft is, therefore, ranked as having a net margin higher than 79% of the companies in the global software and infrastructure industry. In the same regard, Walmart was 68% higher in the retail industry while Volkswagen was 83% higher in net margins in the automotive industry.
Asset Utilization
Asset utilization involves the calculation of returns on Assets which measures the efficiency in which a firm uses their assets to generate income (Christensen, Baker & Cottrell, 2014). In short, it shows how well a company uses what it has to generate income. Therefore, it is given by;
Asset utilization – (net income/revenue) * (revenue/average total assets)
Similar to the return on equity, asset utilization can be affected by dynamic business cycles. Due to this, the ratio becomes crucial when looked at in the long-term perspective. Due the many factors such as stock buyback, may make the ROA not reflect the specific earning authority of the assets. ROA and ROE should not be used in the comparison of firms that are in different industries (Christensen, Baker & Cottrell, 2014). Microsoft’s ROA is higher than the rest of the companies even though they are in different industries.
Financial leverage
Financial leverage is recognized as the ability of an enterprise to use its debt in acquiring assets. It is also commonly known as trading on equity. It is given through;
Financial leverage – average of the total assets/average of the total equity
For the first quarter in 2016;
Volkswagen – 429031.724 / 97714.633 = 4.391
Walmart – 199143/77864.5 = 2.558
Microsoft – 180983.5/75793 = 2.388
When the value of assets falls, the financial leverage may fail to be beneficial. They do not guarantee the success of any business (Christensen, Baker & Cottrell, 2014). Volkswagen is, therefore, risking due to its high financial leverage in the event of having a decline in sales. From the above recordings, Microsoft is taking less risky investments of using debt to acquire assets as opposed to Walmart and Volkswagen.
Conclusion
Comparing companies in different industries is not always easy due to the variety of factors that involve the various operations that are undertaken. As stated above, ROE and ROA will not be useful when comparing the companies since they are from various industries (Christensen, Baker & Cottrell, 2014). In the same regard, manufacturing companies will have different accounting methods.
The allocation of resources and elements will be different. The service industry often has little overhead costs that lead to higher revenues that are converted to profit. On the other hand, manufacturing companies have higher revenues due to the variety of products and the costs. It is also to note that the difference in accounting is due to the standards applied. Inventory costs in IFRS are not allowed as opposed to GAAP standards.
Similarly, write-downs are reversed under the IFRS while it is not allowed in under GAAP. The IFRS are based on principles while the U.S. GAAP focus on rules. Therefore, IFRS better present economic transactions. However, all companies have shown efficiency in using their working capital even though they are done in different degrees (Christensen, Baker & Cottrell, 2014). All in all, Microsoft proves to be most efficient and having more financial strength.
References
Christensen, T. E., Baker, R. E., & Cottrell, D. M. (2014). Advanced Financial Accounting. The McGraw-Hill Companies, Inc.
Financial Analysis of Sprint Corporationand Its comparison with Verizon Communications Inc
Sprint Corporation is US based telecommunication company which provides wireless and internet services. It was founded in 1899. HTC is considering shifting to this company’s communication system so this report synthesizes the financial analysis of the company so as determine its future prospects and financial viability. The tools of trend analysis, ratio analysis and stock price trend have been applied.
This financial analysis will become the base for taking the decision whether to shift to this company’s communication system or not. Sprint Corporation changed its financial year from Jan-Dec to April-March in 2014. So the financial period ending on March 2015 is of 15 months. The comparative study of financial performance of Sprint Corporation and Verizon Communications has also been done to study the prospects of Verizon Communications.
I. Trend analysis of financial performance in financial analysis of Sprint Corporation and Verizon Communications
The financial technique of trend analysis has been applied to evaluate the financial performance of Sprint Corporation for last three years along with its comparison with Verizon Communication Inc. for the last year i.e.2016.
Table 1: Trend analysis
Sprint Corporation
Verizon Communication Inc
Dec-12
Dec-13
Mar-15
Mar-16
Dec-15
Dec-16
Revenue ($ in Millions)
35345
16891
34532
32180
131,620
125,980
Increase/decrease in Revenue (%)
-52%
-2%
-9%
-4%
Net income ($ in Millions)
-4326
-1860
-3345
-1995
17,879
13,127
Increase/decrease in Net Income (%)
-57%
-23%
-54%
-27%
Working Capital ($ in Millions)
4,885
2,389
-1,163
-5,130
-12,772
-3,945
Increase/decrease in working capital (%)
-51%
-124%
-205%
69%
Return on assets (%)
-8.57
-2.7
-4.03
-2.46
7.49
5.37
Return on equity (%)
-46.73
-11.39
-15.41
-9.62
124.48
67.4
(Morningstar, 2017)
The above table depicts the trend value of revenue, net income, working capital, return on assets and return on equity.
Revenue: There is decline in revenue of Sprint Corporation over the last three years. The reduction was huge in 2013 as it reduced by more than half. In 2014, the company was able to revive its revenue and able to gain revenue near to base year i.e. 2012. This financial period is of 15 months. It can be one of the reasons for recovery in revenue. In 2016, again the revenue reduced by 9%.
Net income: There is declining trend in net income of Sprint Corporation. The value of net income is negative in all the years. The decrease in net income of financial period 2016 is greater than the decrease in revenue. It means the company has not been able to control its expenses.
Working Capital: There is decreasing trend in working capital of the company, which represents the excess of current assets over current liabilities. The working capital was positive in 2013 but it became negative in 2015 and 2016. The decrease in working capital depicts the deterioration in the capability of the company to repay its short term liabilities in time.
Return on assets: The return on assets of Sprint Corporation is negative in all years.
Return on equity: Similarly return on equity of Sprint Corporation is also negative in all years.
If we compare the performance of Sprint Corporation for the financial year 2016 with the performance of Verizon Communication Inc, we find that the decline in net income of Verizon Communications Inc was also greater than the decline of its revenue. It also has deteriorated working capital position but it has been able to generate positive return on equity and assets.
Want help to write your Essay or Assignments? Click here
PERFORMANCE ANALYSIS OF INDITEX GROUP
EXECUTIVE SUMMARY
The analytical and critical review of a company’s performance is a very important managerial responsibility. Most of the decisions are based on the figures generated by the finance and accounting departments and this calls for strict observance of the financial reporting standards in the preparation of the financial statements. They must capture all the relevant information so that the inferences drawn from them can be realistic and effective. These figures must reflect the true and fair view of the company.
INTRODUCTION
Inditex Group is a Spanish company and one of the major players in the textile industry. It is composed of more than 100 companies all engaged in the manufacturing, designing and distribution of textiles all over the world.
Question 1.ANALYSIS OF FINANCIAL PERFORMANCE
Comparison of latest year with previous year reports.
The financial year for the Group ends at 31st January of the proceeding year.
The following are extracts from the Group’s financial statements;
Year ending 31stJan.2011
Year ending 31st Jan. 2012
Sales
12,527
13,793
Operating Income
2,966
3,258
Operating Profit
2,290
2,522
Pre-tax Profit
2,322
2,559
Net Income
1,732
1,932
Earnings per share (Euros)
2.78
3.10
.
There was growth in each of the above variables, an indication of the company’s good performance.
Question 2
Ratio analysis of both latest and previous years:
(A)LIQUIDITY
Current ratioThis ratio indicates the company’s ability to meet its current liabilities obligations using current assets;
Therefore for the year ended 31st January 2012 the current ratio for the company
The current ratio for the year ended 31st January 2011 was
Quick ratio
The second liquidity ratio is the Quick ratio. This ratio shows the ability of a company to satisfy its current liabilities using its most liquid assets ( Deverrel, 1999).
Current liabilities
Therefore the quick ratio for the year ended 31st January 2012= 5437- 1277 = 1.54
2702
For the year ended 31st January 2011 the quick ratio was =5203- 121
2675
Networking capital to sales ratio
This ratio indicates the liquid assets of a company based on its need for that liquidity (as indicated by sales) after the company meets its short term obligations.
Therefore for Inditex Group, the networking capital to sales ratio for the year ended 31st Jan 2012 was = 5437- 2702 =0.19
13793
The ratio for the previous year was = 5203- 2675 = 0.2
12527
The larger these liquidity ratios are, the greater is the company’s ability to meet and finance its short term obligations. If for instance one considers the current ratio, huge amounts of current assets and less amount of current liabilities will imply that the company can successfully meet its short term obligations.
The Inditex group is performing very well because the liquidity ratios analyzed increase in the present year as compared to the previous. This shows that chances of the company lacking liquid capital for its immediate requirements are minimal (Keegan, 2005).
(B)SOLVENCY RATIOS
These ratios show the ability of a company to service its long term debts and also any interest earnings that will accrue on those debts. The larger these ratios are the more solvent a company is and hence its ability to service any of its long term debt commitments (Caroline, 1997). These ratios include:
Solvency ratio.
This is expressed as a ratio of the total assets to liabilities. Therefore;
For Inditex company the solvency ratio for the year ending 31st January 2012 is =10959 =3.09
3544
For the year ending 31st January 2011=9826 =2.85
3440
For the year ending 31st January 2010= 8335 =3.62
2304
Debt ratio
This ratio shows the degree of reliance on debt by a company to finance its assets. The lower the debt ratio the stronger is the company.
Debt ratio= Total debt
Total assets
The debt ratio for the company for the year ending 31st January 2012= 1.54 = 0.00014
10959
The debt ratio for the year ended 31ST January 2011= 4.17 = 0.00042
9826
These figures are very low and this indicates that the company is very strong and can fully service its debts which are very low.
Indebtedness ratio
This ratio is used as an indicator of what makes up the debt liability of a company. This is because a company’s total debt can be in other areas like payables, salaries and not only in form of bank loans.
Indebtedness ratio= Total debts
Total liabilities
For Inditex Company, the indebtedness ratio for the year ending 31st Jan 2012=1.54 =0.0004
3544
For the year ending 31st January 2011 = 4.17 =0.001
3440
(C)WORKING CAPITAL MANAGEMENT RATIOS
The working capital enables a company take advantage of opportunities as they arise. The working capital is normally the difference between current assets and current liabilities.
Working capital ratio = current assets
Current liabilities
This ratio indicates the ability of the company to finance its long term obligations. It is the same as the current ratio.
Collection ratio
This ratio gives the average number of days it takes a company to transform receivables into cash.
Collection ratio= accounts receivable
Average daily sales
The collection ratio for this company for the year ending 31st Jan 2012=548.28 =14.5
13793/365
For the year ending 31st Jan 2011 = 498 =14.5
12527/365
Inventory turn over ratio
This ratio indicates how efficient a business is in the selling and management of its inventory.
Inventory turn over ratio= Net sales
Inventory
The inventory turn over ratio for Inditex group for the year ended 31st Jan.2012=13793 =10.8
1277
For the year ended 31st Jan.2011= 12527/1214=10.3
Want help to write your Essay or Assignments? Click here
(D) PROFITABILITY RATIOS
These ratios are an indicator of how well a firm is performing. The net profit margin ratio shows how much profit a company is making for every unit currency of sales (Fred, 2000).
Net profit margin ratio = Net profit after tax
Sales
The net profit margin ratio for the company as at 31st January 2012 was 14.2% and for the previous year was 12.1%
Return on assets ratio (ROA)
This shows the level of profitability as a comparison to investment in new capital.
Return on assets = Net income
Total assets
The return on investments for the company as at 31St January 2012 was 18.4% and for the previous year it was 14.9%.
This ratio tells how efficient the management is in using the company’s assets to generate earnings.
Return on equity
This rate indicates how mush the shareholders earned for their investment in a company.
Return on equity= Net income
Total shareholders equity
The rate for the Inditex group was 24.8% for the year ended 31st January 2012 and 21.7% for the previous year.
Want help to write your Essay or Assignments? Click here
(E) ASSET EFFICIENCY RATIOS
Inventory turn over ratio
This ratio indicates the number of times inventory is sold and stocked every year. If it is high the company could be in danger of having stock outs and if it is very low the company could be having some obsolete inventory that does not sell in the market.
Inventory turn over ratio= Net sales
Inventory
Inditex Group had an inventory turn over ratio of 13793/1277=10.8 for the year ended 31st January 2012 and the ratio for the previous year was 12527/1214=10.3
Days’ sales in inventory
This ratio measures the performance of the company for the management and the owners of the company.
Days’ sales in inventory = 365 days / inventory turn over
For this company the ratio will be 365/10.8=33.8 for the year ended 31st January 2012 and 365/10.3=35.4 for the previous year.
Fixed assets turn over ratio
This ratio gives a picture of how the fixed assets like plant and equipment are being used to generate sales.
Fixed assets turn over ratio= sales/ net fixed assets.
For the company, the ratio is 13793/4082= 3.4 times for the year ended 31st January 2012 and 12527/3414=3.7 times for the previous year. This means the fixed assets were used more to generate sales in the year ended 31st January 2011 than the proceeding year.
Want help to write your Essay or Assignments? Click here
Question 3
Most of the industry operators experienced moderate sales. On average majority had net profit margin ratios of between 4 to 9 %. This was mainly due to the effects of the global financial crisis of 2008 and the majority have not fully recovered.
Question 4 Key performance indicators (KPIs)
Current ratio
2.01
Solvency ratio
3.09
Collection ratio
14.5
Net profit margin ratio
14.2%
Inventory turn over ratio
10.8
Question 5
Key performance indicators denote the level of success of an activity and the achievement of a company’s goals and objectives. KPI’s are used in various departments of the organization and therefore those choosing the indicators to be used in a particular section must have a good understanding of the organization. There should also be good management frameworks in companies to enable better understanding of the procedures and hence the selection of the correct KPI for use.
Question 6
The level of liquidity and solvency for Inditex is healthy. The liquidity levels have also been rising meaning that the ability of the company to meet its current liabilities obligations using current assets has been improving. The company has also been able to continuously give dividends to its shareholders due to the impressive performances in the management of its assets and equity.
Want help to write your Essay or Assignments? Click here
Question 7
Advantages of using KPI’s
Provides vital information necessary for making business decisions
Alerts managers on the direction the business is taking and need for precautionary and intervention measures.
Provide information that enables the optimal allocation of resources and achievement of set goals and objectives.
Disadvantages
Requires a lot of resources in form of qualified personnel for monitoring and managing the processes involved.
Any biases in the data collection, computation and analysis can have negative implications to the business.
The compilation of this data helps in making key decisions concerning the business. Decisions to acquire other businesses, increasing the product range, marketing strategies to be adopted usually rely on this data (John, 2010).
Want help to write your Essay or Assignments? Click here
References
Caroline, H (1997). Financial Analysis Techniques. London. Prentice Hall, P.28
Deverrel, W (1999). Performance Indicators. Sydney. Lakers Publishers, P.4
Fred, D (2000) “The need for Financial Analysis” (Online) Available from http://www.fin.edu.au/ (Accessed on 19th May 2012)
John, V (2010). Basic Business Decisions. Dublin. Ace Books, P.19
Keegan, B (2005). Analysing Business Environments. Freiburgh. Hewmann Books, P.81
Appendix 1
Annual Interim
2012
2011
2010
2009
2008
Period End Date
01/31/2012
01/31/2011
01/31/2010
01/31/2009
01/31/2008
Stmt Source
ARS
ARS
ARS
ARS
ARS
Stmt Source Date
04/02/2012
03/30/2011
03/30/2010
04/01/2009
06/11/2008
Stmt Update Type
Updated
Updated
Updated
Updated
Updated
Assets
Cash and Short Term Investments
3,517.44
3,433.53
2,420.11
1,466.29
1,465.84
Total Receivables, Net
548.28
498.8
437.44
600.65
465.44
Total Inventory
1,277.01
1,214.62
992.57
1,054.84
1,007.21
Prepaid Expenses
0.0
0.0
0.0
0.0
0.0
Other Current Assets, Total
94.56
55.55
93.67
142.26
43.11
Total Current Assets
5,437.29
5,202.51
3,943.8
3,264.04
2,981.6
Property/Plant/Equipment, Total – Net
4,082.87
3,414.44
3,306.81
3,450.78
3,191.59
Goodwill, Net
218.09
131.69
131.69
131.69
125.58
Intangibles, Net
614.11
555.75
533.28
547.94
517.95
Long Term Investments
9.5
8.92
15.39
14.42
36.17
Note Receivable – Long Term
0.0
0.0
0.0
0.0
0.0
Other Long Term Assets, Total
597.31
512.78
404.48
367.78
252.72
Other Assets, Total
0.0
0.0
0.0
0.0
0.0
Total Assets
10,959.18
9,826.08
8,335.44
7,776.65
7,105.6
Liabilities and Shareholders’ Equity
Accounts Payable
1,838.09
1,886.67
1,557.75
1,540.77
1,577.94
Payable/Accrued
0.0
0.0
0.0
0.0
0.0
Accrued Expenses
178.46
145.57
133.92
0.0
0.0
Notes Payable/Short Term Debt
0.0
0.0
0.0
220.47
333.49
Current Port. of LT Debt/Capital Leases
0.69
2.68
35.06
13.57
37.78
Other Current Liabilities, Total
685.54
639.98
578.23
616.05
508.86
Total Current Liabilities
2,702.77
2,674.91
2,304.96
2,390.85
2,458.07
Total Long Term Debt
1.54
4.17
5.0
13.24
42.36
Deferred Income Tax
182.53
172.65
172.89
213.85
110.96
Minority Interest
40.77
36.98
41.38
26.89
23.92
Other Liabilities, Total
616.75
551.19
482.04
410.11
277.17
Total Liabilities
3,544.37
3,439.9
3,006.27
3,054.93
2,912.47
Redeemable Preferred Stock
0.0
0.0
0.0
0.0
0.0
Preferred Stock – Non Redeemable, Net
0.0
0.0
0.0
0.0
0.0
Common Stock
93.5
93.5
93.5
93.5
93.5
Additional Paid-In Capital
20.38
20.38
20.38
20.38
20.38
Retained Earnings (Accumulated Deficit)
7,312.64
6,359.81
5,343.42
4,722.56
4,181.55
Treasury Stock – Common
0.0
-0.62
-0.62
-0.62
-6.93
ESOP Debt Guarantee
0.0
0.0
0.0
0.0
0.0
Unrealized Gain (Loss)
0.0
0.0
0.0
0.0
0.0
Other Equity, Total
-11.72
-86.89
-127.51
-114.11
-95.37
Total Equity
7,414.81
6,386.18
5,329.17
4,721.71
4,193.13
Total Liabilities & Shareholders’ Equity
10,959.18
9,826.08
8,335.44
7,776.65
7,105.61
Total Common Shares Outstanding
623.33
623.11
623.11
623.11
620.96
Total Preferred Shares Outstanding
0.0
0.0
0.0
0.0
0.0
Financial data in EUR
Appendix 2
Annual Income Statement Data
Actuals in M €Estimates in M €Fiscal Period January2010,2011, 2012201320142015 Sales11 08412 52713 79315 63617 14618 858 Operating income (EBITDA)2 3742 9663 2583 7334 1414 556 Operating profit (EBIT)1 7292 2902 5222 8913 2263 553Pre-Tax Profit (EBT)1 7322 3222 5592 9183 2433 618 Net income1 3141 7321 9322 2192 4572 689EPS ( €)2,112,783,103,553,954,32 Dividend per Share ( €)1,201,601,802,112,402,67 Yield1,79%2,38%2,68%3,14%3,58%3,98% Annoucement Date 03/17/2010 06:18am03/23/2011 06:02am03/21/2012 06:40am—
Want help to write your Essay or Assignments? Click here