Account and Finance

Topics: Balance sheet, Generally Accepted Accounting Principles, Asset Pages: 27 (7606 words) Published: May 4, 2013
Table of Contents

1.Executive Summary4


3.Company background8

4.Trend Analysis, Interpretation and Recommendation9

4.1Interpretation: Sales revenue10
4.2Interpretation: EBIT11
4.3Interpretation: Profit after tax12

5.Horizontal Analysis, Interpretation and Recommendation17

5.1Interpretation: Assets18
5.2Interpretation: Liabilities20
5.3General Interpretation21

6.Vertical Analysis, Interpretation and Recommendation24

6.1Turnover (Sales) and Gross Profit Analysis24
6.2Operating Segment Analysis25
6.3Assets Analysis27
6.4Current Assets Analysis28
6.5Non – Current Assets Analysis30
6.6Liabilities and Equity analysis32

7.Ratio Analysis, Interpretation and Recommendation34

7.1Profitability ratios34
7.2Efficiency ratios38
7.3Liquidity ratios39
7.4Capital structure ratios41
7.5Market performance ratios41

8.Overall Analysis, Interpretation and Recommendation43

8.1Overall Analysis and Interpretation43


9.1 Limitations of Trend Analysis47
9.2 Limitations of Horizontal Analysis48
9.3 Limitations of Vertical analysis48
9.4 Limitations of Ratio Analysis49




12.13 year trend analysis for the income statement for 2010, 2011 and 2013.54 12.2Horizontal analysis for the balance sheet for 2011 and 201254 12.3Vertical analysis for the balance sheet for 2010, 2011 and 201254 12.4Vertical analysis for the income statement for 2010, 2011 and 201254 12.5Complete ratio analysis for the financial statement for 2010, 2011 and 201254

1. Executive Summary

The purpose of this report is to utilize financial analyses to explore the financial performance of Esprit Holdings Limited during 2010 to 2012. This report provides trend analysis, horizontal analysis, vertical analysis and ratio analysis to evaluate the company financial position and based on the findings to give various recommendations to the company. Finally, the report will also go through the limitations in the above analyses.

Due to the challenging operating environment and continually uprising raw materials and labor costs, the company had poor financial performance over 2010 to 2012. Store closure programs were implemented in Europe and Asia Pacific during these periods. Firstly, trend analysis indicates that the sales revenue, EBIT and profit after tax were drop year on year. Secondly, horizontal analysis and vertical analysis shows that the company had exceeding current and non-current assets by ineffective investment strategy. At the same time, vertical analysis also find out that the company’s turnover and gross profit declined year over year. Although capital structure ratios express that the company successfully maintained its net cash position and market performance ratios also show that the company had high P/E in 2012; however, different ratios show that the company was facing financial downturn over 2010 to 2012. There were downward trends among profitability ratios; besides, efficiency ratios show that inventory conversion period, debtor collection period and creditor repayment period both kept rising from 2010 to 2012; besides, liquidity ratios also show that the cash was unable to covert all short term payable and debts by its resources.

According to the above analyses, we find out that the declining profit was the main reason to make the company had poor performance in overall analyses; therefore, we suggest that the company may focus its target markets in Asia Pacific especially in China to gain opportunity to increase its sales revenue as Europe and U.S. are struggling in different financial issues; China is an economic superpower and has desirable economic growth; meanwhile, the company should...

References: 1) Atrill, P. and McLaney, E. (2006), Accounting and Finance for Non-Specialists, 5th ed. London: FT Prentice Hall.
2) Birt, Chalmers, Byrne, Brooks and Oliver (2012) Accounting: Business Reporting for Decision Making
3) Hoggett, John and Edwards, Lew (1996), Accounting in Australia, 3rd Edition, Jacaranda Wiley Australia
4) Gallagher, Timothy J and Andrew, Joseph D Jr (2002), Financial Management: Principles and Practice, 2nd Edition, Prentice Hall, Upper Saddle River, New Jersey
5) Michael Jones (2006), Accounting, second edition
6) Wood, F and Sangster. (1999), Business Accounting 2, Financial Times PitmanPublishing, 8th Edition.p.410
1. 3 year trend analysis for the income statement for 2010, 2011 and 2013
3. Vertical analysis for the balance sheet for 2010, 2011 and 2012
4. Vertical analysis for the income statement for 2010, 2011 and 2012
5. Complete ratio analysis for the financial statement for 2010, 2011 and 2012
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