Financial Case Polo Ralph Lauran Essay Example

Financial Case Polo Ralph Lauran Paper The results show that RL is managing its balance sheet very well; especially in he categories of profitability, capital efficiency, liquidity and financial leverage. The results also show that Rills operations are running proficiently when viewing the CARR, Debt/Asset Ratio, and Gross Profit Margin results. Two areas were highlighted as chances to Improve the overall productivity of the company and should be addressed accordingly. The areas include liquidity (quick ratio) and market valuation (market perception based on Price per Earning PIE). Once these areas were improved, the company will not have any significant risks to be concerned about. By 2013, Rills ability to quickly use their cash and convert other current assets into cash has decreased by 13. 4%, which might put their ability to fulfill their short-term obligations and debts In risk. However, RL Is still at top of peers In this area. During the same year, PIE ratio of RL has decreased by 24%, which Indicates that the market has poor expectation of the companys future earning. RL depends on department stores in selling their products especially in the US and Canada, which gives them little influence on what these department stores buy and offer their customers, or how they display their products. Also, department stores may force RL to merchandise at lower prices to Increase their margin, which consequently effect Rills Background Polo/Ralph Lauren Corporation (RL) was founded by an American designer Ralph Lauren in 1967 and currently centered in New York. The company grew magnificently in the sass and has become one of the best-known sophisticated designs in the world. We will write a custom essay sample on Financial Case Polo Ralph Lauran specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Financial Case Polo Ralph Lauran specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Financial Case Polo Ralph Lauran specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The company currently sells a huge collection of products including fragrances and accessories for men and women, clothing for young boys and infants, and a variety of housewives, shoes, furs, Jewelry, leather goods, hats, and year. (Polo Ralph Lauren Corporation, 2014) Adding to its success Polo/Ralph Lauren Corporation (RL) now runs a line of restaurants as well. According to outside analysts offering 12-month price targets, Polo/Ralph Lauren Corporation has a median target of $176. 50 per share, with a high estimate of $210. 00 and a low estimate of $148. 00. Outside analysts are now estimating an average post of $8. 77 earnings per share for Ralph Lauren Corp. in the current fiscal year. Ralph Lauren Corpss revenue now boosted to 13. 6% compared to the same quarter last year. (WAKE News Analysis report, 2014). As the newly assigned SCOFF of Ralph Lauren Corpss, I have enfolded a comprehensive financial analysis of our company to give us an overall understanding on the performance and the health of our company. Such analysis will help us identify the areas that are performing well and determine areas that require improvements and more attention. The findings of this report will be used as a strategy to improve our company and help our business be at the cutting edge; hence ensure that our products and services remain up to date and meet the constant change in consumers and investors demands. Figure Current Company forecast by external analysts Analysis In order to support my conclusions and recommendations, the analysis part below contains a detailed comparison of the financial metric between Polo/Ralph Lauren Corporation (RL) and its peers Barometric Fitch Company (NAP), Reportable, INC. (ROAR), and GAP, INC. GAPS). I have conducted a financial performance analysis using the following ratio classifications: profitability, capital efficiency, liquidity, financial leverage management, market valuation, and a 3-year DuPont Analysis of RL during the period of 2011 through 2013, in compare to its peers in the same retail industry. Profitability The Revenue Analysis graph shows the revenues of Polo/Ralph Lauren Corporation (RL) in compare to our three main competitor companies within the retail industry, Barometric Fitch Company Class A (NAP), Reportable, INC. (ROAR), and GAP, INC. (GAPS). Figure 3-year Revenue comparison Figure Compound Annual Growth Rate Figure 2 shows a line chart comparing the revenues of the four companies from the financial year of 2011 to 2013. As seen in figure 2, the revenue of RL has increased by 21% in 2012 and continues to increase slowly in 2013. The rise in revenues could be result of the companys high margins on its various brands, especially in the Collection brands. (Trifles, 2014) Also, wholesale revenues have increased by 14% to reach $840 million, as a result of the companys strong performance in North American and European operations. Trifles, 2014) On the other hand, GAP, INC. Has considerably high revenues compared to the other three companies. Most of Gaps products are made with cotton, which prices have begun to recede recently. However, this made Gaps clothing relatively cheap and affordable and helped the company increases its profit margins. Barometric Fitch Co. s (NAP) and Reportable, Inc. s, (ROAR), stock seem to have l ost their appeal for investors, especially since the brands are no longer as popular as they were back in the ass, which explain the flat lines in their revenues in the period of 2011 through 2013. Figure 3 shows the Compound Annual growth rate in percentages for the four companies. RL has a growth rate of 10. 8 %, which is highest among the competitors. The high growth rate could be due to Rills recent enhancements in the retail channel by opening more stores and serving more countries through the e-commerce channel. (Trifles, 2014) Analysis for Gross Profit The gross profit comparison shown in Figure 4 illustrates how efficiently companies use labor and supplies in the production and distribution. This indicates that GAP, INC uses its resources more efficiently compared to RL. However, Ralph Laurels gross profit in 2012 grew belly 5. 5%, mainly driven by better channel and product mix. Revenue and Profitability health. It also counts as a source for paying additional expenses and future savings. Without a sufficient gross margin, the company will suffer in paying its expenses, therefore wont have the opportunity to expand in the future. In general, the higher he profit margin, the better the company performance. (Investigated). Figure 5 shows the 3-Year gross profit margin for the four companies. As we can see the profitability of RL is considerably high in a constant level, rising slightly in 2013. Which indicates that RL has performed well and is a healthy and sustainable corporation, coming in second to Barometric Fitch Co. s (NAP) and faring far better when compared to three other competitors. Capital Efficiency Return on Assets The return on Assets is an indicator of how profitable a company is in relation to its overall resources (total assets). ROAR shows the investors how efficient management is at using its assets to generate earnings. (Investigated). The return on Assets for the four companies is shown in Figure 6. RL comes second to GAP, INC in showing continuous improvements year after year, which indicates that they are both using their assets better each year. Return on Equity ROE validates a companys ability to generate profits from shareholders equity. A company of high return on equity is more capable of generating cash internally. (Investing for Beginners). Figure Return On Equity The return on equity comparison seen in Figure 7 shows that Rills ROE rises by 8. % from 2011 to 2012 with a slight increase in 2013. This indicates that Rills management is doing an excellent Job in generating a return from shareholders investments. With 42. 2% ROE rate, GAP, INC recorded the highest return on equity rate the retail industry. Barometric Fitch Co. s (NAP) seems to have a stable ROE with a slight decrease during 2013. Reportable, Inc. On the other hand, shows a significant drop in the ROE, which is an indication off major weakness within the corporation. ROE is further analyzed through DuPont model at the end of this report. Quick Ratio Quick ratio measures the ability of a company to use their cash and other current assets that are convertible into cash in order to fulfill the short-term obligations of the organization. The higher the quick ratio is, the better the companys liquidity position (Accounting-simplifier) Figure Quick Ratio Comparison The quick ratio comparison seen in Figure 8 shows that Rills ability to use its cash and current assets paying its debts is decreasing by 13. 4% from 2011 to 2013. However, the quick ratio rate of RL is much higher than its competitors and at the same time higher than the ideal quick ratio rate, which is 1:1. This indicates that we have enough current assets to pay our short-term debt. Financial Leverage Debt to Assets ratio Total debt to total assets is a leverage ratio that states the total amount of debt the company owes in compare to its assets. If the ratio is less than one, it indicates that most of the companys assets are funded through equity. If the ratio is greater than one, then most of the companys assets are funded through debt. (Investor words). As seen from the debt-asset ratio chart shown in Figure 9, all retail companies have a ratio less than 1, which indicates that all the assets of the companies are not funded through debts. The ratio of RL has been decreasing gradually from 2011 onwards. It is preferable to have a lower debt to assets ratio to insure that the companys flow of cash and borrowing will not be held back. Reportable, Inc. Has a dramatic increase in their debt to asset ratio, which indicates that the company started to be funded through debt. Barometric Fitch Co. s has a stable and flat line throughout the period of 2011 to 2013. GAP, INC has the highest ratio among competitors. Market Valuation Price to Earnings ratio Figure PIE Ratio comparison PIE is a financial metric that measures the attractiveness of a companys stock price ND determines if a stock is trading on an investment. In general, a high PIE implies that investors are expecting higher earnings growth in the future compared to As seen in Figure 10, PIE ratio of RL falls by 24% throughout the period of 2011 to 2013. Barometric Fitch Co. Tend to have a high PIE ratio in 2011 followed by a drastic decrease by 64% and manage to recover to reach out to 49. 32 % PIE rate in 2013. On the other hand, the rate of price per earning of Reportable, Inc. Has decreased radically between 2012 and 2013, which indicates that investors are expecting poor future earnings for the company. GAP, INC has a relatively low and yet slowly increasing PIE rate. DuPont Analysis Measures 2011 2012 2013 Profit Margin 10. 04% 9. 93% 10. 80% Assets turnover 1. 14 1. 27 1. 28 Fin Leverage 1. 51 1. 48 1. 43 ROE DuPont model Check (%) 17. 19% 18. 65% 19. 82% The above table is a deeper analysis of ROE for RL for the period between 2011-2013. By dividing return on equity of a company into three parts, The DuPont Analysis helps locate the part of the company that is underperforming, and therefore facilitate addressing this issue. The slight decrease in Rills profit margin during 2012 could be he result of our plan to expand by opening new stores in several locations worldwide. However, our profit margin has Jumped to 10. 80% in 2013. Assets turnover ratio has been slightly increasing through 2011 to 2013, which indicates that RL is capable of quickly turning over its asset through sales. And finally, the financial leverage shows that the companys liabilities are decreasing. Summary of results ranked in the financial performance per category. The scorecard of green specifies areas of strength with respect to being in the middle or on the upper end of the peer roof. The scorecard of Lime Green also meant in some cases that the trend line is increasing in the right direction. The scorecard used yellow to indicate average performance or an indication of a trend line starting to decrease. The color Red is a signal of being at the bottom of the peer scores and/or if there was a major concern with a continued decreasing performance. Conclusions and Recommendations Polo/Ralph Lauren Corporation competes in a very competitive industry, with a high rivalry rate. Although some competitors are bigger and have more resources than RL, et RL managed to establish a well-recognized and popular brand name in the fashion industry. The peer group financial performance analysis shows that under the current difficult economic situation, Ralph Lauren Corporation has a pretty optimistic overall financial performance. To specify, RL is managing its balance sheet very well in the categories of Profitability, Capital Efficiency, and Financial Leverage. The only areas of concern are liquidity (quick ratio) and Market Valuation. Our ability to use our cash and convert other current assets into cash has decreased by 13. 4% in 013, which means that we might find it difficult to meet our short-term obligations and debts. Nonetheless, we are still at top of peers in this area. The PIE ratio shows how the market perceives our company in compare with the peer group. RL has a median PIE rate however it is gradually decreasing which indicates that investors dont have high expectations on our future earnings. This forecasts a future risk regarding the market perception of RL as not being viewed as outperforming its peer group for growth. In order to address this concern, I recommend setting up a meeting with the executive management including the product strategy and