Comparative Business

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          Student Name: Jie Wei

          Student number: 200918572

Date: 17/03/2016

Tutor: Claire Mallanaphy

       Kieran Maguire

             Word Counts: 1803

Contents

1. Introduction……………………………...…  3

1. Company Performance………………….   4

1. Gross Profit Margin…………………….  5
2. Operating Profit Margin……………….  8

1. Company Position ………………………   10

1. Inventory Turnover……………………   11
2. Debt to Equity ratio…………………..   14

1. Liquidity……………………………………  16

1. Current Ratio…………………………..  17

1. Conclusion………………………………...  19

1. 0 Introduction

Burberry, known for high-quality apparel and accessories, which founded in 1856 and it has become one of the most famous British luxury brands in the fashion designer sector. Currently, their own mainline stores, wholesale channels and licensing are expanded all over the world. As a global fashion organization, it employs approximately 11,000 employees throughout the world. The total revenue up 11% to £2.5 billion and its retail revenue increased by £184 million from the previous record £1623 million in 2015, with net profit £336.3 million (Burberry Plc Group, 2015).

Although the global market is experiencing the economy recession and the external environment change rapidly, Burberry still contributes to financial health and positioning the Group well for the future.

2.0 Company Performance

For a better understanding of Burberry’s performance and position, it is important to use financial ratio analysis to evaluate the information and financial data in financial statement and make a comparison with its competitor.

The total revenue of Burberry Group was a double-digit percentage growth over recent years, it increased by £1022 million from 2011 to 2015(Keynote, 2015). Burberry Group continued to focus on investment in flagship markets, social media and technology improvement, meet the demand of customers and engagement with customers through the business.

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Figure 1: Burberry Plc revenue 2011-2015 and underlying growth on previous year.

2.1 Profit Margin Ratio

The overall trends and efficiency of a company could be determined by profitability ratios. Profit margin analysis is one kind of type ratio, which refers to measure the profitability of a company from cost of sales.

As apparent from table 1, Burberry had a higher profit margin ratio of approximately 10% than Mulberry Group, which indicates the growth in goods sales and cost control management of Burberry much better than Mulberry’s. The gross profit of Burberry rose up 8% to £1697.8 million and total revenue increased to £2455.5 million in 2015.

As noted in the below table that the ratio of Burberry decreased slightly to 69.97% relative to the prior year. It is recorded in Burberry Annual Report (2015), this change was caused by the negative exchange rate movements. The inflation of exchange rate would highly affect the sales and purchase of the company. Besides, the Group launched a new fragrance line in September and continued to develop digital platform to enhance their market position. The declining sale in Hong Kong is also a big concern for the company, which has dipped by 8% percent of sales (Wearden, 2015). It is noted that customer purchasing power is slowdown in Asia, especially in China. The Group should take action on improving sales productivity and tight cost control.

On the other hand, compare with Mulberry, its sales dropped to £148.68 million of 2015 from £163.45 million across all over the world. As one of the largest sales region, the sales in Asian market decreased by 39% (Mulberry Group plc, 2014). Meanwhile, there was an increase in the expenditure of products. The reason for the increase is that most of Mulberry’s products are produced in the UK. The manufacturing process takes long time and high cost. Mulberry should pay more attention on improving the operation process of products and costs control management.

Table 1: Burberry Plc Group and Mulberry PLC Group Gross Profit Margin from 2014-2015.

2.2 Operating Profit Margin

The operating margin is measured a company’s operating income divided by its sales.

Figure 2 represents that the operating margin of Burberry had a decline from 19.12% to 17.45%(Financial Times, 2015). It might indicate the ineffective management in operating costs in 2015. The operating expense rose up by 10% compared to the prior year. It is observed that half of the increase in operating expense came from volume-related operating cost. The company stayed focus on developing higher quality materials to produce products, expanding their new flagships and enhancing their digital technology (Preliminary results of Burberry Group plc, 2015). As we all know, the luxury apparel and accessories company is in a highly competitive market, it is important for Burberry to improve competitive advantages to support the growth of sales.  

Furthermore, the licensing of operating profit reduced significantly by 16%. It is measured that approximately 80% licensing income comes from Japan. Therefore, the deprecation of Japanese Yen had an adverse impact on Burberry’s revenue and profit.

It is worth to noting that Mulberry stands apart from Burberry Group. Burberry’s operating margin was more than twice as much as Mulberry’s in 2014 (Mulberry Group plc, 2014). More seriously, it slipped to 1.14% compared with the prior year. The retail assets of international stores incurred a loss and the staff cost also increased. This is an important warning sign for Mulberry to reassess the management and strategies of company.