Laura Ashley Holdings: The Battle for Survival Case
1-How serious is Laura Ashley’s financial situation.
Laura Ashley’s business performance has been on the decline since the early 1990’s. The company’s financial situation confirms this as well.
Firstly, the decrease on sales is important: Sales have declined from 1995 to 1999, with the North America Region being the most noticeable: over 40% of decrease in five years.
Operating margin is -5.8 %, while its competitors have over 10%. That means LA is losing money on each sale and can't pay its fixed cost with revenues. This situation is not sustainable and shows that the company won’t be able to survive if they do not take necessary precautions immediately. Company currently only has one major source of funding, MUI, which owns 40% of Laura Ashley’s stocks, and its willingness to invest further is questionable since £43.5 million of investment resulted with a deficit in 1999. This will create insecurity for the future funder candidates.
Although they reduces inventory ratio and the costs due to the sharp reduction on sales; Turnover has decreased from 322.6 (in 1995) to 288.3 (in 1999) meaning that %10 turnover loss. Equity Shareholder’s fund is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. Laura Ashley’s equity has been decreasing for last 5 years from 86.1 to 19.7 meaning that 23% decrease. Net assets decreased 54%. It means that they are melting assets to cover the huge cost that cannot be covered with sales revenues. This is such a several indicator of how they are operating the company badly. Deficits occurred nearly every year, especially negative cash flow, leaving decreased return for the stockholders and requiring even more to fund continuing operations
Laura Ashley’s sales data is toward the very bottom of industry range, less than a quarter of Next plc. The margins and turnover ratios are... [continues]
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