Ralph Lauren and Coach Financial Comparison

COVER PAGE

Company Analysed: Ralph Lauren and Coach.

Comparative analysis:  

The ROE measures how much a firm profits as a percentage of investment made by the shareholders. This ratio tells the investor how efficiently their investment is being utilised and how much they are earning. Higher the ROE, the more desirable the firm becomes for an investor. Comparing the ROE, Ralph Lauren and Coach has nearly a similar ROE in the latest year (17.72% and 16.39% respectively), but if we compare the ROE over 3 years, Coach’s ROE ( from 47% in 2013, to 16.39% in 2015) has been decreasing exponentially as compared to Ralph Lauren’s ( from 20.17% in 2013 to 17.72% in 2015). Based on this Ralph Lauren is a better option for investors.

Now comparing ROA, in 2013 Coach was better utilizing the assets to generate income than Ralph Lauren ( 31.18% and 13.84% respectively), but in 2015 while Ralph Lauren has been nearly consistent in their efficiency, Coach has not fared well. Coach ROA has declined from 31.18% to 9.66%.

If we see the gross profit margin for Coach and Ralph Lauren, Coach has been performing better than Ralph Lauren, and both firms are consistent with it. But when we compare the net profit margin, only Ralph Lauren has been consistent, Coach’s net profit margin has been decreasing, from 20.38% in 2013, to 9.6% in 2015. Strong gross profit with a weak may indicate a problem with the firms operating or non-operating expense. So based on the gross and net profit margin, we can conclude that Coach has been having problems with effectively managing their operating and non-operating efficiency.

Analysing the account receivable turnover, Ralph Lauren’s ART has been consistent with very less deviation (13.82% in 2013, 14.24% in 2014, 12.26% in 2015), whereas Coach’s ART has been on a decline (29.01% in 2015, 25.7% in 2014 and 20.05% in 2015).  Higher the ART, lower the number of days the firm takes to collect its credit that it gave to its customer. So, Coach’s ART turnover days has been increasing over the years, which is bad. They have become less aggressive in retrieving the money that they have given on credit to their customer. They should change their strategy.

Current ratio is used to measure the liquidity of the firm i.e. the firm’s ability to pay back its short term and long term obligations. If the current ratio value is less than 1, then the firm’s doesn’t have the ability to pay all its liability. So investing in such a firm is not a good idea. Ralph Laurens has a current ratio between 2.6 to 3.4, whereas Coach has a current ratio between 2.28 to 3, which is good as the current ratio is greater than 1 because if the current ratio value is less than 1, then the firm’s doesn’t have the ability to pay all its liability. So investing in such a firm is not a good idea. But if the firm’s current ratio is greater than 3, it means that the company is not utilizing its current assets efficiently. So both Coach and Ralph Lauren should utilize their high current ratio analysis to get more finances and effectively manage its working capital to increase its operations and revenue.

Debt to Equity (D/E) is the ratio that measured a firm’s debt relative to the stock holder’s equity, and how the firm is taking on debt as a mean of leverage to fund its operations. A higher D/E means that the company is aggressively taking on debt to finance its growth, which is normally associated with higher risk. In D/E for Coach was none in 2013 and 2014, but in 2015 they have a D/E of .35, which is very high for a single year. As for Ralph Lauren the D/E is constant for all three years .14, which is low and good as the number has not being increasing. So Ralph Lauren can be viewed as less risky when compared to Coach.

Earnings per share (EPS) represent the earning a shareholders make for every share that he holds. This is a one of the single most important factor considered by investors when investing in a firm as it gauges the company’s profitability per unit of stock ownership. It is also a key driver of the stock price. So higher EPS is always better than a lower EPS because this means that the company is more profitable and it has more profits to distribute to its shareholders. Coach’s EPS in the latest year is way higher than that of Ralph Lauren’s (1.45 and 0.18 respectively). But comparing over the last three years Ralph Lauren has been consistent in the amount it makes for its shareholders, where as Coach EPS has been decreasing at an exponential rate (3.61 in 2013, 2.79 in 2014, and 1.45 in 2105). If this trends continue then it won’t take much time for Coach EPS to fall below Ralph Lauren’s EPS.

Currently Coach’s ratios are better than that of Ralph Lauren’s. So, for a short term investment we think that Coach is a better investment. If the current trends continue in the future, we think that Coach will fall below Ralph Lauren. So, for a long term investment we think Ralph Lauren is a better investment.

RALPH LAUREN

Description of business of company: Description should include, what does the company do? How does it operate? Where does it operate? What are its key strategies?

Ralph Lauren Corporation is a publicly traded American company founded by an American designer in 1967. The company designs, markets and sells luxury men's, women's and children's apparel, accessories, fragrances and home furnishings to customers worldwide.

Ralph Lauren head quartered in New York operates in three segments: Wholesale, retail, and licensing.

Ralph Lauren wholesale products are sold to major department stores and specialty shops in North America, Europe, Asia, and Latin America. The company's retail segment directly sells to the consumers via concession based shops located in Asia and Europe; and via e-commerce in North America, Europe and Asia. Ralph Lauren License segment sells third parties the right to operate retail stores and to use its trademarks for products such as apparel, eyewear, and fragrances.

Ralph Lauren reiterated its long-term strategy in 2015, pledging to expand into more international markets; extend its retail business reach by opening more direct-to-customer stores; expand its accessories and other product and brand offerings; and invest more in its operational infrastructure. 

Key issues: Highlight what is are the key strengths, weaknesses, threats, opportunities of the business

Strengths

• Diversified product offering.
• Favorable consumer brand recognition
• Expanding international growth in China, Japan, and other Asian markets
• Outsource the majority of their production
• Strong financial position

Weaknesses

• Rely on licensing partners to preserve the value of the company's licenses
• During periods of recession Ralph Lauren products are often considered discretionary items

Opportunities

• Create acceptable value proposition for retail customers
• Partnerships with other companies

Threats

• High levels of consumer debt could adversely affect sales
• Changes in consumer preferences regarding style

Ralph Lauren

Common Size Income Statement