Zara Fashion

Topics: Leverage, Inditex, Leveraged buyout Pages: 4 (1254 words) Published: March 29, 2008
1.How would you describe Zara’s financial performance?
Since only Inditex historical financials are shown in the case, we took the financials of Inditex to describe Zara’s financial performance. It is reasonable to take Inditex financial data because Zara made up 76% of Inditex’s sales in 2001.

Zara (Inditex) Financial Performance in 1996-2001
Liquidity Ratio
(current ratio)0.81 1.00 0.88 0.87 0.90 1.02
Leverage Ratio
(debt/ equity)1.98 1.84 1.97 1.98 1.80 0.75
The liquidity ratio was slightly less than 1 in most years. It is not a good sign since Zara may not be able to use its current assets to cover its liabilities. The leverage ratio generally has a decreasing trend. It shows that Zara is turning to use more of its own equity to support its operation and development rather than financed by other sources. There is an increasing trend in profitability. This is a good sign showing that Zara is growing well.

Financial comparisons among the 4 main competitors in 2001
Zara (Inditex)GapH&MBenetton
Liquidity Ratio
(current ratio)1.02 1.48 3.40 1.63
Leverage Ratio
(debt/ equity)0.75 1.52 0.32 1.27
The liquidity ratio of Zara is lower than the other three competitors. But liquidity ratio is not always the higher the better, maybe Zara has a just right liquidity ratio in this case. As long as the liquidity ratio is larger than 1, it is good. Zara’s profitability is generally as good as H&M and is significantly higher than Gap and Benetton. It shows that Zara is doing better than Gap and Benetton.

2. Did Zara have any sustainable competitive advantages? If...
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