Comparative Business

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Figure 2: Operating profit margin of Burberry Group plc and Mulberry Group plc in 2014 and 2015.

3.0 Company Position

3.1 Inventory turn over

The inventory turnover ratio measures how effectively the firm in selling goods during a period.

From Figure 3, it indicates that Burberry experienced a decline from 228 days in 2014 to 210 days in 2015. The lower the ratio, the quicker the inventory turned into receivables (Clausen, 2009).

This measurement reflects how popular and easily their inventory could be sold. As a firm in a fashion and luxury sector, inventory is one of the most important parts of assets. It is necessary for Burberry to turn their inventory into cash. Otherwise, it will be out-of-date and worthless to the firm. As a consequence, Burberry involved in developing media digital, expanding the retail channel and developing younger market. Burberry increasingly focused on developing iconic products and providing great customer service to meet the demand of customers. In 2015, the company partnered with Twitter, Snapchat and YouTube to publish their fashion show to reinforce their brand image and influence (Milness, 2015). Moreover, they improved online and mobile shopping experience. It is reported by Zaryouni(2015) that mobile shoppers has increased by 16% at the end of 2014. It has become one of the most successful digital luxury bands in the world.

Meanwhile, the difference between Burberry and Mulberry’ inventory turnover is large. Mulberry’s inventory turnover increased dramatically by 23 days in 2015. It might be a bad sign for the Group, which means poor sales of goods and deprecation might be incurred in the warehouse. The company tried to raise handbag price in order to increase revenue in 2015. Unfortunately, the gross revenue did not climb up and inventories also increased. The uncertain market conditions and recession still big problems for luxury market. Due to the longer inventory turnover, the company should move towards to lower price strategy and develop media platform to attractive more customers.

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Figure 3: Inventory turnover of Burberry Group and Mulberry Group in 2014-2015.

3.2 Debt-to-equity ratio

The debt-to-equity ratio is a long-term financial leverage that calculated by dividing total liabilities by shareholder’s equity.

According to table 2 as shown below, the ratio of Burberry Group decreased significantly from 0.88 in 2011 to 0.51 in 2015. The firm has a lower level of debt, which means the creditors of Burberry provide fewer funds and stakeholders invest more proportion in business assets during the year. In 2011, the creditors of company provide 0.88 cents of assets for each £1 of assets and shareholders invested only £713.6 million in finance assets. The low level of debts and shareholds’ investment means slow growth and development of the firm in emerging markets. It could impact on profitability of a company, which might increase risk of the company. In 2014, Burberry borrowed £757.5 million to finance its growth that was the highest liability during the period of time. This might be caused by fully operation of Beauty line and sales growth was weak in 2014. The higher liabilities of the company might result in the increase of interest expense and risk (Burberry Group plc, 2014).

However, with the good performance and health financial of Burberry Group in the following four years, shareholders provide the increasing number of funds in the business operations. The lenders also would willing to borrow more money to finance the growth.

Burberry

Total Liabilities (million)

Shareholder’s Equity

(million)

Debt-Equity ratio

2011

630.7

713.6

0.88

2012

719.2

867.3

0.83

2013

693.4

1017.0

0.68

2014

757.5

1165.4

0.65

2015

721.7

1400.9

0.51

Table 2: Total liabilities, Shareholder’s Equity and Debt-Equity ratio for Burberry 2011- 2015.

3.0 Liquidity

The liquidity ratio refers to the ability of firm to cover its short-term obligations. It plays a vital role for shareholders and investors to analysis the financial strength and stable of a firm.

3.1 Current Ratio

The current ratio shows how well a firm could pay off the current liabilities with its current assets.

As seen in Figure 3, the current ratio of Burberry Group had a slight growth from 1.9 in 2014 to 2.3 in 2015. Generally, if company has a higher ratio that means this firm could more easily to pay off its obligations. This ratio indicates Burberry Group has 2.3 times more current assets than current liabilities. It can be seen in the Annual Report of Burberry Group (2015) that its current assets consisted of a large proportion of cash and receivables, which could pay its current liabilities rapidly. The inventories in the current assets increased slightly. On the other hand, bank overdraft and borrowings dropped sharply compared with the previous year. The increasing interest rate of bank and health financial might be the reasons for this. It is a good sign for business to attract more investors and keep shareholders satisfied.

It seems the current ratio of Mulberry incurred a drop from 2.32 to 2 in 2015. Generally, a lower ratio might imply decrease in inventory, problems