Financial Accounting

Topics: Financial ratios, Generally Accepted Accounting Principles, Financial ratio Pages: 6 (1875 words) Published: April 27, 2013
2.0 Ratio analysis
The next will introduce the Mulberry’s and its competitor—Burberry’s financial ratios from their financial statements from 2010-2012. 2.1 Profitability analysis
2.1.1 Net profit margin

Table 2.1 Mulberry and Burberry’s net profit margin
Net profit margin| 2010| 2011| 2012|
Mulberry| 4.12%| 14.03%| 15.02%|
Burberry| 6.42%| 13.74%| 14.27%|
Data source: Mulberry’s and Burberry’s 2010-2012 annual reports From Table 2.1 it can find that Mulberry’s net profit margin was lower than Burberry’s in 2010, while higher after 2011. Although both had a rapid increase in 2011, Mulberry’s net profit margin increased faster than Burberry’s (2.41 times: 1.14 times), due to a big increase in net profit. Depending on Director's report, competitive pressures, changes in luxury fashion and hence consumer demands are continuing risks which may result in the loss of sales. Mulberry manages this risk by the continuous investment in the design of new products and marketing to stimulate customer interest and by maintaining strong relationships with customers. 2.1.2 Gross profit margin

Table 2.2 Mulberry and Burberry’s gross profit margin
gross profit margin| 2010| 2011| 2012|
Mulberry| 58.97%| 65.35%| 66.18%|
Burberry| 62.82%| 67.26%| 69.94%|
Data source: Mulberry’s and Burberry’s 2010-2012 annual reports From 2010-2012, Mulberry’s gross profit margin was lower than Burberry on the condition that its net profit margin was higher than Burberry’s in 2011 and 2012. The British luxury leather goods and accessories maker has had a tough year dealing with the global slowdown in consumer spending and its impact on sales(Sonia, 2012), so the increase of gross profit margin is due to the decrease of productive cost caused by and continuous expanded business and scale economy (Berman et al., 2006). 2.1.3 Return on assets (ROA)

Table 2.3 Mulberry and Burberry’s ROA
ROA| 2010| 2011| 2012|
Mulberry| 11.64%| 27.37%| 32.76%|
Burberry| 15.11%| 22.05%| 22.95%|
Data source: Mulberry’s and Burberry’s 2010-2012 annual reports From Table 2.3, it can find that Mulberry’s ROA is 3.47% lower than Burberry’s in 2010, while its ROA is 5.32% higher in 2011 and 9.81% higher in 2012. It shows that Mulberry’s asset usage ability is more excellent than Burberry since 2011. ROA is decided by profit margin and asset turnover rate. Mulberry’s asset turnover does not change too much during 2010-2012, so ROA’s change is due to the improvement of Mulberry’s profit margin. 2.1.4 Return on equity (ROE)

Table 2.4 Mulberry and Burberry’s ROE
ROE| 2010| 2011| 2012|
Mulberry| 11.23%| 40.60%| 40.51%|
Burberry| 13.62%| 28.12%| 29.74%|
Data source: Mulberry’s and Burberry’s 2010-2012 annual reports From Table 2.4, it shows that Mulberry’s ROE was lower than Burberry’s in 2010, while far higher since 2011, reflecting more profits can be made based on each unit of capital invested by shareholders (Francesca & David, 2001). Mulberry’s financial lever and debt asset ratio maintain at a stable level, so the reason that ROE’s big increase is probably due to Mulberry’s expanding strategy. Mulberry succeeds in opening new stores overseas and increasing its revenues from other countries (Mulberry, 2012). 2.1.5 Mulberry’s profitability trend analysis

Graph 2.1 Mulberry’s profitability trend
Data source: Mulberry’s and Burberry’s 2010-2012 annual reports 1 From Graph 2.1, it shows that Mulberry’s sales revenue increase rate is far higher than sales cost since 2011 so that it can produce more profit in the future. From non-financial information from chairman's review, it can know that as a result of sustained investment over a number of years, Mulberry has been successful in developing international demand which continues to become less dependent upon customers in the UK or any other single market. Besides, Mulberry will continue the strategy of building the brand in international markets by...
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