I.T and Hauhaus Essay Example for Free

I.T and Hauhaus EssayAs they argon the competitor within the commercialize, the retailing strategies to be ingestiond argon similar. Therefore, it is easier to collect and compare the monetary information and draw egress the conclusion to reveal which comp any would be worthier to invest. The report covers the telephoner and fabrication background, ratio analysis, future forecast of cardinal companies transaction. 2)Company Background Bauhaus (0483, HK) Bauhaus was found in 1991. It has been listed on HKEX stock market place since 2005. There are more than 200 retails store and over corners and point of sales in Hong Kong, Macau ,mainland chinaware and Taiwan,. Apart from interchange distinct unusual fall guy, liked Cheap Monday, G-Star, EVISU etc. Bauhaus also building the topical anaesthetic brand liked Salad, T Tough Jeansmith and 80/20. It is a leading retail store in selling casual wear, particularly for jeans item. There are 234 Bauhaus shops in Asia. Using the wholesale strategy, Bauhaus can expand the vexation from Asia to Western country. In the future, it may diversify its crossway line like launch more foreign brand to increase its competiveness. I. T (0999, HK) I. T was found in November of 1988. It has been listed on HKEX stock market since 2005.The base has an extensive self managed retail network extending to intimately 450 stores across Greater China with staff round 4,800. The brands are well accepted in Thailand, Saudi Arabia, Australia, the Philippines and France. More stores will be opened in these places in the future. The feature of I. T retail store is group several brands in a tidy retail location. It owns a number of in-house brands liked 5CM, fingercroxx and X-large, as well as distributing European and Japanese precedents brands such(prenominal) as French Connection and A Bathing Ape Comme des Garcons, DG, etc. 3)Industry OutlookHong Kong is one of the fashion hubs in Asia. There are a wind variety of topical anesthetic and international fashion brand locate there flagship store in Hong Kong. The competitive is dynamic and incentive. Hong Kong consumers are willing to spend specie on fashion and clothing. As the buy power of is senior high(prenominal)(prenominal), so the get hold of of fashion product is long. According to CIA THE WORLD FACTBOOK, this entry gives the gross domestic product (GDP) or foster of all final goods and services produced within a nation in a given year. From this moderate, Hong Kong is be to 37 after compared to 227 countries in the year of 2010.According to the information from Asia Case Research Centre (ACRC), it shows that retail is the 2nd largest sector in the service intentness that accounted for 85. 7% of Hong Kongs GDP. Also, The Census and Statistics Department (CSD) indicate that the grade of total retail sales in October 2011, provisionally estimated at $34. 2 billion, increased by 23. 1% over a year earlier. Analyzed by broad type of retail outlet and comparing October 2011 with October 2010, wearing apparel increase 14. 6% footwear, allied products and other clothing accessories increase 11. 3%.This data proofs that the demand of fashion items is huge and purchasing power in this region is relatively high. Besides, tourists come to Hong Kong are increasing each year they bring with high purchase power in fashion items, especially those Chinese tourists. According to the statistics released by the Immigration Department, about 800,000 to 900,000 Mainland visitors travel to Hong Kong monthly. It shows that Hong Kongs market has a huge potential development chance. According the data of Hong Kong government, the sales revenue of retailing military control has a produce during April of 20010 to Feb of 2011.It is because the economic environment is better than past year. Hong Kongs GDP fell in 2009 as a result of the global pecuniary crisis, but a reco very began in third quarter 2009, and the preservatio n grew nearly 6. 8% in 2010. In addition, Chinas providence harvest-tide fast, the performance of its thriftiness produce is considerableer than the other country. And Hong Kongs economy is influenced by China very a lot. In the future, we can see that Hong Kongs retailing fear will growth rapidly. It seems a heavy(p) chance to develop the retail business however, there are some chance of ikons on the growth of fashion retail business in Hong Kong.Nowadays, Globalization is a hot topic of the world, more and more foreign brands enter in Hong Kong market, such as GAP, Forever 21, Zara, HM and Monki, etc which provide good wrong and trendy design merchandises. They regarded Hong Kong as the stepping stones to go into the China market. With more branding in Hong Kong, the competition between them is becoming more intensive and serious. Therefore, the local fashion retailers take a leak to build up their competitive advantages to withstand the impact from those foreign brand s.Also, because of the inflation of Hong Kong and China, the salute of the materials, labor and transportation is getting higher. Garment manufacturing is a labor intensive activity. The embody of garment is primarily from the increasing labor appeal and transportation cost. In order to deal with, the retailer probably assume to order more amount of quantity each time to achieve the economy of scale, so the cost will be decline. Furthermore, as we know that Hong Kongs rental outlay of shop is the first third expensive in the world. The rental price has been increasing rapidly in the recent years.From 2010 to 2011, the rental price was increased more than ten percent. So, rental price of the store is a core cost of any business, especially fashion retailer as it needs a large space for displaying and storing the products. The rental cost affects the realize of the fashion retailers. To conclude, Hong Kong fashion retail market is excuse positive. There are umteen great oppo rtunity for Hong Kong fashion retail to expand its business. However, there are some uncertainty need to be ante up attention, such as the entrance of foreign brands and the unstable rental cost.So, the local fashion industry needs to create a competitive strategy to deal with. For example, local fashion retailers can use the attractive marketing strategy, liked collaboration with other brands, provide excellent customer services and building great brand image. 4)Ratio analysis i) block out for profitability I. T (in HKD 000)Bauhaus (in HKD 000)* a)Return on Equity (Net income / Average stockholders equity)416945/(1843212+1477723)/2 =25. 1%25. 1% b)Profit mouldings (Net income/ Net Sales)416945/3834422 =10. 9%11. 4% ii)Test for fluidness I. TBauhaus c)Current Ratio Current As constitute/ Current liabilities1873282/1012495 1. 85%3. 3 d) degraded Ratio (Current Assets- Inventory)/ Current liabilities(1873282-736717)/1012495 =1. 1%1. 7 e)Inventory Turnover Cost of goods sold/ Avera ge Inventory1405482/(736717+394520)/2 2. 52. 0 iii)Test for Solvency and equity position I. TBauhaus f)Debt/Equity Ratio Total liabilities/ Total stockholders equity(1012495+429852)/1843282 0. 78(1497+126461)/494938 0. 26 iv) Market test I. TBauhaus g)Price/ moolah ratio Current Market Price per Share/ Earning per Share4. 88/0. 33 =14. 82. 98/0. 32 =9. 3 h)Dividend Yield Ratio Dividends per share/ Market price per share0. 146/4. 8 =3. 0%0. 177/2. 98 =5. 9% * credit from annual report* Two financial reports announced in different date- Bauhaus- For the year ended 31 March 2011 I. Tfor the year ended 28 February 2011 i )Test for Profitability Profitability is a simple measure of the overall success of the corporation. This is a class of ratios that are used to assess a businesss ability that generate earnings compared to its expenses and other relevant costs incurred. To determine rather the federation is valuable for investing or non which need to get high profitability when com pared with competitors troupe.However, in fashion industry, the sales revenue is seasonal. For example, the sales revenue is oftentimes higher during Christmas and Chinese recent Year in Hong Kong. So, we should not compare the retailers fourth-quarter profit margin with the profit margin from the same utmost a year before because it would be far more informative. a)Returns on Equity This ratio indicating how much income was earned for every dollar invested by the stockholders. ROE can reflect if they pick out used the money that invested in the caller to generate much more income. If the ROE is low, it shows that the returns of the investors will not be high.And the company doesnt utilize the resources that they have invested. Two companies have a similar result of this ratio. Both two companies can generate about 20% of income use stockholders equity. It is because retail store is not very high investment to enter the market it has higher ROE when compare to other industry liked social system Company. In order to measure the company is worth to investing on ROE ratio should not be lower than 15%. So, two companies are worth to invest on. b)Profit margin Profit margin is an indicator of a companys pricing strategies and how well it controls costs.It is calculated by finding the net profit as a percentage of the revenue. A low profit margin indicates a low margin of sanctuary higher danger that a decline in sales will erase profits and result in a net loss, or a negative margin. The higher profit margin heart and soul that the company has a higher ability to generate profit. I. Ts result is 10. 9%, it is lower than Bauhaus 11. 4%. I. T should sully the expense. Bauhaus has a higher profit margin in 2010/2011. It shows that they have frame effort to maximize the profit. Since compared with last year (10. 5%), it has been increased. i) Test for liquidly It is a class of financial poetic rhythm that is used to determine a companys ability to pay off its shorts debts obligations. A companys ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts frequently use the liquidity ratios to determine whether a company will be able to continue as a breathing out concern. c) Current ratio This ratio measures the ability of the company to pay latest debts as they become due. It is the authorized ratio that we can identify if the company has a good cash flow.If the debts recalled but the company does not have enough money to pay it, the company may be asked to bankrupt. On the other hand, latest ratio should be in appropriate level. Ratio is overly high fashion the company did not fully utilize the current assets to generate the profit. Bauhaus have a higher current ratio than I. T, it means Bauhaus ability of returning the debts is greater than I. T. It can more utilize current assets to generate more income. It shows that they have $3. 3current assets for returning $1 of current liabilities. Investor need to concern the ability of a company that utilizes the current asset. I.T has a lower Current ratio than Bauhaus. However, it is enough ability for them to returning the current liabilities when they are recalled. And it shows that I. T has better utilization of the assets to generate profit. It shows that they have $1. 85 current assets for returning $1 of current liabilities. d) Quick Ratio Quick Ratio is similar with the current ratio with no consideration on the scrutinize factor. It is more representatives to measuring rather the company can return the current liabilities immediately. The quick assets included Cash, Accounts due etc. These assets can return into cash in short time.Inventory will not be counted in this ratio as it may need longer time to return into cash and a lay on the line of cannot be sold. It is a very important ratio for fashion industry, since the trends turn of clothing is fast, the product may be in today, but out day tomorrow. So, fashion retailer should not continue similarly many inventories. Bauhaus have a higher in Quick ratio, however, compared with the current ratio, it is a great variation on two ratios. It means that the scrutinise tied up its current assets. It is not a good issue on a fashion company. They need to bare the risk on high discount of the product when the product is outdated.It will be high losses on the revenue. They can minimize the store through different method, liked big sale, buy one get one plain and so on. Although the quick ratio f I. T is lower than Bauhaus, it is enough to returning the debts when all the current debts are recalled. e) Inventory Turnover This ratio measure how quick of a company sells their inventory. Higher inventory derangement lead to shorter cycle on inventory. Since inventory is not easily being sold out and transform into cash in a short period, fashion retailer should not hold too much inventory. Since fashion items are easily faded out.If the company store too much stock, the risk of the inventory cannot be sold out will be increase. Also, the expenses of storing will be occurred. Once the inventory is outdated, the company needs to sell it in a large mark down price. The profit of the company will be affected Since Bauhaus have a lower level on inventory, its inventory upset will much slower than I. T. It may tie up the capital if the inventory cannot be sold. So, company should reduce the level of inventory. I. T has a greater performance on inventory overturn. It shows that they have shorter cycle on inventory.So that it is much easier transforming inventory into cash. iii) Test for Solvency and equity position Its a set of ratio that to test the company can be able to meet it long-term repayment responsibility. It provides a measurement of company can continue to meet its debt obligations. f) Debt/ equity Ratio This ratio measure a companys financial leverage calculated by dividing its total liabilities by stockholders equity. It indicates what proportion of equity and debt the company is using to finance its assets. I. Ts result is 0. 33, shows that $0. 33 liabilities that exists for each $1 invested by the owners.It is a very low value. Bauhauss result is 0. 21, which is lower than I. T. In the Balance Sheet, we can find out that Bauhaus did not ask for the long term debts from the third party. It shows that they dont have the interest burden. The result shows that two companies is not using the debt financing to acquire the financial resources, liked selling bonds, bills or notes to the investors. Debt financing is much higher risk than equity financing. As these two companies is listed company, they would like use the equity financing to submit money. And the equity financing method is more safety and no regular interest burden. v) Market Test Market test relate the current market price of share of stock to an indicator of the return that might a ccrue to the investor. It based on the share markets perception of the company. It can let the investor to know if the company is worth to invest. g) PE Ratio Current Market Price per Share/ Earning per Share This ratio measure the race between the current market price of the stock and its earnings per share. The higher the ratio, the higher the perceived type of the earnings by the share market. It also shows the future growth of company.If the P/E ratio is too high, it means that the value of the company is overstated. And it is not a good choice to investing on that company. I. T have a higher PE ratio than Bauhaus it means that the quality of the earnings by the share market is higher. It is more worth to invest h) Dividends Yield ratio This ratio measures the dividend-paying performance of different investment alternatives. The higher of result, the better performance. Bauhaus have a higher result, it shows that they have higher dividend-paying performance. If the investor wa nts to put the money into low risk and long term investment.They can choose this company. 5)Limitation on analyses of ratio Since two financial reports is announce in different ended date. The result may not be accurate. The fashion retail industry turnover rate is seasonal, like The Chinese New Year of 2011 was in February so the sales turnover must be high in that moment. After that, the turnover will be drop. So, these two companies will in different sales turnover rate. 6)Forecast of the companys future prospects This part can be divided in to two parts, the 5 years income statement analysis and potential risk of the company. a)I. TThe diagram shows that turnover have been increased gradually during 2007 to 2011. Although 2008-2009s local economy is in down turn, the company smooth can strive to increase of turnover. It is predict that the company will probably maintain the addition since the economy situation is recovering and the local residents will spend more money on cl othing items. The diagram shows that I. T had undergone a decrease on profit in year 2009 due the poor economy situation. And they suffered decrease of financial income. And the operating expense was higher than 2008. After 2009, there was a great onward motion on profit.It has six times more profit comparing during 2010and nine times during 2011. It is predict that the company will probably maintain the increment of the profit if it can keep the level of expenses. However, there are some risks have been raised. The operating cost is increasing during these 5 years. Since the rental price is much higher in the recent years. They should adapt different strategy in order to keep the cost in the low level. Another risk is that I. T needs to pay attention that is the exchange issue. Since I. T sources many merchandises from different countries and the foreign exchange is unstable.For example, Japan YEN is much higher exchange rate. However, I. Ts buying office purchase many Japanese fa shion brand products. So the cost and price of the merchandises will be impacted by the exchange rate. To deal with risk management, I. T embed a risk alert culture throughout the Group, the Internal Audit Department has implemented an annual intrinsic control risk self-assessment to allow major business units to identify and analyze the risks underlying the achievement of business objectives and to determine a basis for how such identified risks to be managed and mitigated.In the coming future, I. T should pay more attention on risk management in order to prevent suffering from the economy situation and to have a greater growth. Bauhaus Bauhaus also have a gradual increase of turnover during 2007-2011. The increment from 2009 to 2010 was slowly. It may because of the economy situation was still not recovered yet. However, there was a sharply increment from 2010 to 2011. It is predict that, the turnover will be increased faster. Bauhaus also suffered a decrease of financial income in 2009.After 2009, there was an improvement on profit growth. However, the improvement is less than I. T. The diagram shows that the profit properly tends to be increased. Bauhaus also face the foreign currency risk and operation cost increment risk. The Group continuously monitors its foreign exchange position and, when necessary, will hedge foreign exchange exposure arising from contractual commitments in sourcing apparel from overseas suppliers. Generally, the Group introduces conservative strategies on its financial risk management.In the future, Bauhaus will have a great growth. However, in the fashion business market, the information is run fast, the risk is always happen. The company should build up a risk management system to minimize the risk of company operation. 7)Conclusion The financial performance of both Bauhaus and I. T compared in this report is great. And the prediction of their future growth is positive. Thereby, two companies are worth to be invested. The above ratios show that Bauhaus have a better performance than I. T.For the investor that can undergo low risk, so the investment on Bauhaus is more preferable. It is because the company growth and financial debt position is better, and it has a higher dividend yield, and they keep on paying the dividends in last 5 years. For the investor who wants to have higher return, I. T will be a good choice. It is because the PE ratio is lower, so the company still has a great improvement and the share price probably being increased. Its good for the investor that purchasing the stock in low price and then sold them in higher price.