Uni-variate Analysis for Apparel Industry In the univariate analysis, this paper considers the different market analysis for the apparel industry. This analysis is going to set the stage upon which the analysis of the Burberry group will be done in the subsequent section. We begin with the risk levels in which the apparel industry in the UK is operating under. Consider the following graphical presentation of the industry performance:
Fig: interest ratio for industry median
Interest coverage ratio consists one of the most important ratios for any organization. It is even more important for the industry as it gives the overall environment of debt-to-equity in which market players operate. This ratio gives the industrys overall ability to pay interests that are within the debts obtained (van Bergen, 2013). The interest coverage ratio thus shows how many times that those interests can be paid to the borrowers. In this case, the interest coverage ratio has always gone above 20 times for the industry, even on the worst days. This asserts the limited risk that is associated with investing in this industry.
Fig: gearing ratio analysis for the industry median
With regards to the gearing ratio for the industry, we first understand that the gearing ratio represents the industrys assets that are on debt. Therefore, the larger the numbers of industry assets that are on debt, the less stable that industry is. A stable industry requires that only a small amount of the assets are on debt to ensure that there is possible liquidity if the industry begins to go under. On the worst year of the industry, only 40% of the industry assets were on debt, a situation that was quickly mitigated in the following years. The industry has since them maintained a fluctuation of this ratio between 20% to 35% of the assets it owns. This further presents lowered risks for the industry players and high stability in the industry itself.
Fig: current ratio for industry median
With regards to liquidity of the company, the current ratio is analyzed. This ratio measures the industrys ability to provide basic liquidity as well as stability for the company. It determines how well an industry can pay off its expenses without necessarily suffering from industry disruptions. The lowest possible value for this ratio, therefore, is 1.00. At this value, the industry can fully pay off the financial needs if the industry should suffer some disruptions. Higher values indicate that the industry may have some ability in paying off those needs as well as maintaining relative stability. The higher the value, the lower the stability.
An analysis of the current ratio values shows that the industry is quite able to pay of any expenses in the case of disruptions. The deviation from the 1.00 mark is very little and never goes past the 2.50 mark in the ten-year analysis period. This shows the ease of liquidity in the industry in the case of any inconveniences in the market.
Fig: quick ratio median for the apparel industry
The quick ratio will depict the ability of the industry to convert current assets into cash in order to pay off any current debts that are present. The lower the quick ratio, the more stable the company. This is presented in such a way that if an industry has the quick ratio of 0.5, there is an instantaneous ability to pay off up to half of its debts when it converts current assets into cash. Therefore, the maintenance of relatively low ratio means that the industry is more stable.
Compared to the expected low of 0, the apparel industry seems to have dependable stability as it maintains a quick ratio below the high of 1.40. This means that the industry presents a very stable industry where money can quickly be raised to meet short-term financial obligations. There is a lot of money at hand for industry players, meaning that the expected funds that could need to be raised at any particular point may suffice for at least a part of the obligation.
Fig: ROCE industry mean for the apparel industry
The return on equity measures the amount of profit that an industry will make based on the comparison with the amount of money that the shareholders invest in the company. In a situation of steady economics, the desirable percentage return would be between 12-15%. Any higher performances mean that the particular industry is giving very handsome returns to the stakeholders. Considering the performance of the apparel industry, one can see that indeed there is some good performance, much higher than expected in the model well-performing industry. Despite dips between the years 2008-2010, there has been significant upward movement for the industry.
There have been fluctuations in the industry. Nonetheless, the least return on equity has been found to be 15% in the last 10 years. This is a relatively high return considering that it is the higher end for the expected return. Therefore, the profitability of the industry investment is quite high. It is a fertile ground for investment.
It is important to note that this study has used medians instead of mean values for the analysis of the different industry ratios. This is because the medians provide better analysis as opposed to the mean values because of the ability for the media value to remove interference from outliers. In the analysis, therefore, one will find that there is a difference between the median value and the mean value of almost all of the ratios, underlining the effect of outliers in obtaining values. The lows and highs are considered too as obtained from financial reports.
Burberry Trend Analysis
In this section, we look at the trends as they have been for the company, mentioning different notable trends in the company performance through the years being sampled. The trend analysis is important as it gives the performance of the company from different years and seeing the overall management trends of the organization. The trend enables the prospective investor to view the current and past trends in order to determine the viability of investment for this particular company.
Current Ratio Trends
The current ratio shows the ability of the company to pay off any company expenses while ensuring that it stays afloat. In essence, the ratio cannot be any lower than 1.00. At this point, the company can pay off any debts that it has to the full. Therefore, a small ratio means that the company is able to handle any short-term interruptions in the course of business operations should they come. Burberry has shown a remarkable practice in this area by maintaining ratios below 2.50 in the last ten years, showing that the company can handle short term disruptions in the course of business. The payment of debts is quite easy for this company. The past 7 years has seen the ratio between 1.50 and 2.00, showing that the company has maintained stability even in the face of downward spirals in the world economy between 2009 and 2012.
Interest Ratio Trends
As seen in the above analysis, the interest rate has seen significant fluctuation, especially a record high in 2010. With declining sales in this year, the interest ratio was quite high as the company used its funds to pay off debts. Therefore, at the peak of financial hardship for the company, there was stability for the company as the interest rates were very high. The rates have remained significantly high during the subsequent years remaining at an average of 60%. This means that the company has an ability to maintain up to 35% of all debts from its own pockets as of the latest year.
Gearing Ratio Trends
The gearing ratio presents the companys assets that are on debt. As such, this means that the company would be in an awkward position if the majority of its assets are on debenture. In 2014, a record-high of 60% of Burberrys assets were on debt. However, this situation was quickly mitigated in the next financial year to bring the figures a healthy low of 20%. Therefore, the financial analysis concerning the assets on debt for the company shows that the company has been maintaining a healthy level of below 50% for the majority of the past 10 years.
Return on Assets Trends
The return on assets is the return on every invested dollar in the company. As the graph will show, the investment in the company has been on a downward trend in recent years, although this has not hit rock-bottom. There has been reducing return on assets as the company continues due to different market forces including the expansion plans that are on-going. It is important to note that the depiction of the return on assets cannot be considered alone without the return on equity to determine if the losses in this case have been healthy. Consider the graph below for a trend analysis of the return on assets in recent years:
Return on Equity Trends
The return on equity was equally measured for its trends. The return on equity measures the efficiency through which the company makes profits. High ROE rates means that the company is not making profits efficiently. As such, the analysis shows that there has been equally reducing ROE. This means that the company is now making the profits more efficiently, pointing to the lower Return on Assets as attributed to other reasons, such as the ones that have been opined, namely expansion of the company. Therefore, the overall stability of the company is seen to be moving in the right direction in the last ten years. A comparative analysis of the ROA and ROCE will be shown in order to substantiate the statement made, that the company is not losing stability through less returns on assets.
Fig 1: Comparison of ROA and ROCE analyses
Reference for Business. (2014). Burberry Ltd. - Company Profile, Information, Business Description, History, Background Information on Burberry Ltd. Retrieved April 7, 2016, from referenceforbusiness.com: http://www.referenceforbusiness.com/history2/22/Burberry-Ltd.html.
Reuters. (2014). Burberry Group PLC (BRBY.L). Retrieved April 8, 2016, from UK Reuters: http://uk.reuters.com/business/quotes/overview?symbol=BRBY.L.
If you are the original author of this essay and no longer wish to have it published on the SuperbGrade website, please click below to request its removal:
- Examining the Cost of Production in a Given Company
- Enlighten Estate and Letting Agents Booklet
- USA v BP Exploration and Production, Inc. Case
- Fundamentals of Investment Appraisal
- Contrast the Services Provided by the Two Research Firms
- Should Uber Be Made Legal In Australia?
- Company Analysis Essay on Honda: Issues That Affect the Consumer Behavior Towards the Honda Accord Models