Table of contents 1. Introduction6 2. Review of Company Profile7 3. Analysis of Financial Position8 4. Financial and Non-Financial Factors20 5. Recommendation22 6. Conclusion23 7. ReferencesError! Bookmark not outlined. eight. Appendices23 List of figures Figure 1: Du Pont Analysis Figure 2: Relationships amongst Profitability measures Figure three: Profit Margin Ratio Figure four: Gross Profit Rate Figure 5: Assets turnover Ratio Figure 6: Return on Assets Ratio Comparison Figure 7: Debt to Total Assets Figure eight: Cash Debt Coverage Figure 9: Current ratio
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Figure 10: Quick Ratio Figure 11: Oroton Share development Figure 12: Hour Glass Share development Figure 13: Earnings and Dividends per share Figure 14: Dupont Comparative Analysis of Oroton and Hour Glass List of Appendices Appendix 1: Ratio Analysis Appendix 2: Income Statement – Horizontal Analysis Appendix three: Balance Sheets – Horizontal Analysis Appendix 4: Cash Flow Statements – Horizontal Analysis Appendix 5: Liquidity graphs Appendix 6: Profitability graphs Appendix 7: Solvency graphs Appendix 8: Share Trends 1.
Review of Company Profile (approx 300 words) The Hour Glass is a public firm based mostly in singapore. Their major enterprise is retailing of high finish watches by way of their very own stores in six nations, 11 in Singapore, 5 in Malaysia, three in Thailand, 1 in both Hong Kong and Japan and 3 in Australia.
They describe themselves as “Asia’s leading specialist luxury watch retailer. ” They additionally function 2 museums of watches to promote horology in asia, a profitable marketing technique by making Asian consumers extra appreciative of specialist luxurious watches.
The Hour Glass focus totally on retailing and do not manufacture or design any of their own product, as a substitute being sales agents for many big name watch manufacturers like Rolex, Omega, Breitling, Bulgari and Longines. Orotongroup is a public firm primarily based in Australia.
Their main enterprise is retailing of clothes, leather goods and fashion accessories through the Oroton Brand and they additionally maintain the exclusive rights to Polo Ralph Lauren for the Australian and New Zealand markets.
They function out of their own premises in Australia and New Zealand and their Oroton branded merchandise are distributed globally via specialist retailers overseas. Oroton design and manufacture their own products excluding their Polo Ralph Lauren brand. The retail business in Australia is currently suffering from a downturn because of lowered shopper sentiment and reduced spending due to menace of rising rates of interest, the introduction of a carbon tax, local and overseas political points and world monetary points.
Luxury items retailing nonetheless has not suffered as significant a decline as lower end areas of the market. Both corporations have defied this pattern and have grown both their gross sales income and profit consistently over the last several years. While The Hour Glass suffered a small decline in income in FY2009 they have since recovered to above earlier sales highs experienced in FY2008, Orotongroup has seen fixed progress over the last 5 monetary years. With both firms being publicly listed they have a board of administrators with a management group reporting to them.
Both firm boards consist primarily of unbiased directors, The Hour Glass with 75% administrators being unbiased and Orotongroup with 50%. Oroton Groups CEO, Sally Macdonald, is also the Managing director. The Hour Glass does not have any of their government administration team sitting on their Board of Directors. three. Analysis of Financial Position(approx 800 words) Figure 1: Du Pont Analysis One of essentially the most useful insights of economic evaluation is the interconnectedness between the varied elements of the financial statements as seen in the Du Pont Analysis. [Carlon et al. 009, p. 676] We have used this mannequin as the basis for our financial evaluation. 1. Profitability To start our evaluation of those two entities we are going to look at a quantity of profitability ratios in determining the entities monetary standing. Multiple ratios are used as they paint a more detailed picture of exactly what is happening beneath the floor of a selected entity as some data may be misleading when noticed from one dimension. Profitability is the measure of revenue or operating success of an entity for a given period of time [Carlon et al. 2009, p. 675].
As an investor it is important that these two entities are profitable as this can be seen as the necessary thing indicator of the success of the entity itself, because of its effect over the complete entities enterprise, from the power to acquire finance, meet liquidity necessities and to essentially be able to develop as a business. Figure 2: Relationships amongst profitability measures The Profit Margin Ratio (Figure 3) details the profit generated by each dollar of gross sales. Oroton has seen a slight reduction for the yr ending 2010 of 21. 03% compared to 2009’s figure of 21. 05%.
This shows that Oroton’s margin of profit is 21 cents for every dollar of gross sales made. The Hour Glass nevertheless has a a lot lower figure of eight. 43% for 2010 and eight. 01% for 2009 exhibiting whereas they have increased from the earlier 12 months they are solely making 8 cents profit for each dollar of sales. While this will likely present that Oroton appears to be a method more worthwhile entity in comparability to their sales, these figures can also just be detailing the fact that The Hour Glass is only a retailer which sells other model name merchandise whereas Oroton manufactures and sells their own product. pic] Figure three: Profit Margin Ratio To perceive these figures more accurately it’s needed to have a look at the two entities Gross Profit Ratio (Figure 4) which reveals the margin between the promoting price and price of products offered. With similarities to the year’s profit margin ratio, Oroton has shown a slight enhance to its gross profit ratio from 20. 28% in 2009 to 21. 43% in 2010. The Hour Glass has additionally shown a slight enhance to complete 2010 on eight. 43%, up from the 8. 01% of 2009, the identical figures as their revenue margin ratio.
These results show that Oroton has a a lot bigger profit margin on the sale of an merchandise in comparison with the worth of that merchandise while The Hour Glass receives less of a margin. These findings as soon as again element the fact The Hour Glass doesn’t sell their very own product and due to this fact receives smaller revenue for the sale of such product while Oroton manufactures and sells their own product increasing the margin between the sale price of their merchandise and the worth of goods bought. [pic] Figure four: Gross Profit Rate
Another necessary measure of an entity’s profitability is the Asset Turnover Ratio (Figure 5) which reveals how successfully an entity uses its belongings to generate gross sales. As determine 5 demonstrates, Oroton has proven a slight lower in their asset turnover to be at 266. 03% for 2010 down from 272. 47% for 2009. This figure demonstrates that for every dollar of property, Oroton receives sales of 250 dollars. The Hour Glass also has a reasonably secure outcome, exhibiting an increase from 2009’s 188. 36% to one hundred ninety. 82% in 2010. While these outcomes show that Oroton is generating extra sales from their property ompared to The Hour Glass, this ratio can be at times misleading, as one entity could have a much bigger asset base in comparison with the other, however nonetheless the power to generate more gross sales off less property is still a optimistic sign. [pic] Figure 5: Assets turnover Ratio (ATR) Our ultimate measure of profitability is completed with the Return on Assets Ratio (Figure 6) which shows the general profitability of an asset by way of its generated income. Similarly to different profitability ratios, Oroton has recorded another slight decrease in their return on assets ratio to complete 2010 on 55. 3% in comparability with 57. 36% for 2009. The Hour Glass however has seen a slight increase to be at 16. 09% for 2010 up from 15. 10% for 2009. The outcomes of this ratio analysis present that as with the Asset turnover ratio in phrases of sales, Oroton generates good revenue from their asset base. The Hour Glass generates a lot smaller profit from their assets but this can be partly because of their massive asset base. [pic] Figure 6: Return on Assets Ratio Comparison 3. 2 Solvency In analysing the financial place of those two entities it could be very important assess the company’s solvency.
That is the power of the businesses to outlive over a long period of time [Carlon et al. 2009, p. 49]. As an investor into both of these two companies that is important to make certain that the long-term investment either as a shareholder or as a creditor to the company could be paid back. The debt to total property ratio (Figure 7) highlights the proportion of creditor funds which might be invested in property by every company. Oroton elevated its debt to complete property ration barely from 2009 to 2010 from 49. 63% to 50. 32%. This signifies that half of every dollar invested in property came from creditors.
In distinction Hour Glass improved slightly in there ratio from 19. 97% in 2009 to 18. 54% in 2010. Not solely is this an enchancment, but the amount is significantly lower than Oroton. From a solvency perspective Hour Glass is in a significantly better monetary place as it doesn’t have as excessive a danger of not meeting creditor calls for or repayments forcing the company into insolvency. In the current monetary setting that has impacted the world this does pose concern and something that would want robust consideration. It is important to view this in relation to the revenue and money circulate. pic] Figure 7: Debt to Total Assets In order to have a greater evaluation of the person company’s solvency it’s appropriate to additionally take a look at their cash debt coverage ratio. This will indicate the company’s capability to generate cash to fulfill its long term wants [Carlon et al. 2009, p. 50]. Figure eight summarises the cash debt protection of the two firms. Oroton has a a lot larger money debt ratio of around 0. 90 occasions. This is in contrast to The Hour Glass with only round zero. forty occasions. Both firms are quite regular, but Oroton is producing far more cash to cowl debts.
Cash generated from operations from Oroton was sufficient to cowl 80% of their debt. In contrast with hour glass only being able to cover 40% of their debt. Both companies have been quite regular during the last two years in cash debt coverage. Figure 8: Cash Debt Coverage [pic] 3. three Liquidity Liquidity ratios can be quite priceless for short-term creditors and suppliers. They are furthermore priceless at offering an outline to managers who must have an understanding of the entities short-term ability to pay its maturing obligations and to satisfy sudden wants for money.
A comprehensive liquidity ratio analysis can help with exposing any weaknesses within the financial place of an entity. There are a quantity of liquidity ratios’ that can be applied and one of them is the current ratio. This is calculated by dividing present belongings by present liabilities. This ratio is one of some which have the ability to measure an entities short-term capability to pay its maturing obligations and to meet unexpected wants for cash. [Carlon et al. 2009, p. 46] Figure 9: Current ratio [pic] Both Oroton and Hour Glass have elevated in 2010.
Oroton elevated from one hundred forty four. 58% to 169. 23% resulting in a 24. 65% increase for the 12 months. Hour glass additionally elevated from 444. 55% to 466% with a 21. 45% increase. Based on this data it is evident that each entities present trends of a steady short-term debt paying functionality. One thing to note concerning the current ratio is that it doesn’t bear in mind the composition of property. The composition of the belongings is necessary because a greenback of cash is extra available to pay the bills then is a greenback of stock.
Inventory might be transformed into money obtainable to pay debts only after the item is bought and the cash has been received from the patron. [Carlon et al. 2009, p. 46] Another sensible measure of liquidity is the fast ratio. This ratio is a measure of an entities quick short-term liquidity. [Carlon et al. 2009, p. 515] it measures the extent of all assets that can be rapidly convertible into money and used to meet short time period liabilities. The quick ratio supplies a extra conservative measure than the present ratio because it excludes inventory.
The method for this ratio is Quick Ratio = (Current assets – Inventory) / Current liabilities. The excessive the ratio, the upper the level of liquidity for both entity. Generally speaking the fast ratio is 1:1 or larger which results in present liabilities being met from present assets with out the need to sell stock. Figure 10: Quick Ratio [pic] Oroton is displaying power of their short-term debt paying capability going from 19. 78% to 40. 32% leading to a 20. 54% enchancment. Hour Glass has also increased from 121. 13% to one hundred forty four. 50% leading to similar improvement of 23. 37%.
This proves that each entities have improved their short-term debt paying abilities by approximately 20%. four. Horizontal Analysis 3. 5 Share Market Performance The sharemarket performance of The Hour Glass has proven a steady increase during the last 5 years. While it did suffer from decline in development through the GFC, the stock value has outperformed the market by a major margin. Oroton group has additionally carried out well over the past 5 years and their share value has generally followed the market nevertheless it has nonetheless performed higher than the market common. It solely suffered a slight decline during the GFC.
Both firms have carried out nicely however The Hour Glass experienced a far greater decline because of the GFC than Orotongroup. Even though the market entered significant durations of adverse development, The Hour Glass has recovered all its share worth decreases to close the period higher. These variations are carefully tied to the economies by which they function. Australia didn’t undergo as nice an impact of the GFC compared to Singapore nonetheless Australia is now feeling a decline in retail sales that Singapore and other asian international locations usually are not, particularly Hong Kong, Singapore and Malaysia.
The companies primarily differ in their performance during the last 6 months. While The Hour Glass has continued to extend their share worth over the interval by 20%, Oroton Group has proven a decline of 5% over this same interval. This downward pattern for Orotongroup is just one quarter of the overall downward pattern of Australian Stock Market, while the efficiency of The Hour Glass is 4 occasions higher than the market. [pic] Figure 11: Orotongroup Share pattern [pic] Figure 12: The Hour Glass Share trend four. Financial and Non-Financial Factors (approx 300 words)
The main points dealing with both corporations at this time are worldwide uncertainty surrounding the worlds major economies. The retail market in Australia is in decline presently (abs. gov. au, 2011). The clothes retail market has declined by zero. 5%. Reasons for this decline are embrace and enhance in on-line gross sales, which takes money away from native retailers, as well as different issues like political and monetary uncertainty in Australia. Oroton at present has a web-based gross sales offering to enhance it’s bricks and mortar stores.
It is essential for an exclusive fashion model to take care of it’s exclusivity by not reducing costs regularly. Discounting an exlusive model dilutes it’s desirability. Due to their ability to regulate the promoting price of their goods they are ready to keep gross sales margin and retain the model integrity for high quality design and manufacture of fashion items. This is in contrast to other manufacturers which are distributed through independent retailers the place management is misplaced over the pricing of goods. The retail market in Singapore is experiencing progress. Currently the retail market in Singapore is growing at 8. %, nonetheless the watches and jewelry retail has experience development of 25. 7%, this can be a main driver within the present enhance within the share worth for The Hour Glass. Reason for this are a seamless progress in population and the expansion of the overall Singapore financial system. Tourist numbers are also up which is one other main supply of consumers for The Hour Glass shops. The main elements that might influence these brands in the future are extra uncertainty surrounding sovereign debt crises in Europe as properly as present points concerning the debt ceiling of the USA.
If any of those economies were to fail or not get well quickly then the economies of each Singapore and Australia could be adversely effected. Figure thirteen: Earnings and Dividends per share 5. Recommendation (approx 800 words) Figure 14: Dupont Comparative Analysis of Oroton and Hour Glass (2010 year) 6. Conclusion 7. Appendices Appendix 1: Ratio Analysis Appendix 2: Income Statement – Horizontal Analysis Appendix 3: Balance Sheets – Horizontal Analysis Appendix four: Cash Flow Statements – Horizontal Analysis Appendix 5: Liquidity graphs Appendix 6: Profitability graphs Appendix 7: Solvency graphs Appendix eight: Share Trends