What are the limitations of financial ratio analysis and what specific problems did you face when analyzing and bench marking your chosen company? (500 words)
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August 5, 2017What are the limitations of financial ratio analysis and what specific problems did you face when analyzing and bench marking your chosen company? (500 words)
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The latest published financial statements for (Burberry & Prada) should be obtained (You should compare them with the same years). These are the starting point for this assignment and the five year trend for key performance indicators should be analysed. In addition you should source and analyse additional published financial information, and benchmark Burberry against Prada.<br>
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You are required to consider the information you have sourced and use financial analysis to answer the following questions (an indication of word count for each section is given for guidance):<br>
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1. Would you invest (buy shares) in this company at the current share price? (2000 words)<br>
2. What are the limitations of financial ratio analysis and what specific problems did you face when analyzing and bench marking your chosen company? (500 words)<br>
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Your analysis should focus on analysis and interpretation of financial ratios and other financial data.<br>
Your answer must be based on the financial information shown in the financial statements (and any other published financial information you can find for the company). General comments on strategy, marketing, human resources etc will not attract marks in this assignment.<br>
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You could follow the plan below as an example:<br>
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1. Introduction<br>
• What companies did you choose? (in this case its Burberry)<br>
• What is your comparison company? (in this case its Prada)<br>
• What do these companies do in the market?<br>
• Why did you choose these companies?<br>
• A brief about their sales?<br>
• Locations? Market size? Whom are their customers?<br>
2. Financial Analysis (2011-2015) 5 years <br>
• 5 year comparison between Burberry and Prada, about profitability then discuss the results.<br>
• 5 year comparison about Return On Capital Employed %<br>
• 5 year comparison about Gross Profit Margins<br>
• 5 year comparison about operating margins<br>
• 5 year comparison Liquidity Ratios (Current Ratio)<br>
• 5 year comparison about quick ratio<br>
• 5 year comparison about Inventory Ratio<br>
• 5 year comparison Gearing Ratios (Financial Leverage)<br>
• 5 year comparison Interest Cover<br>
• 5 year comparison Earnings per Share (EPS)<br>
• 5 year comparison Dividends per Share<br>
• 5 year comparison Price Earnings Ratio<br>
EXAMPLE OF THE 5 YEARS COMPARISON:<br>
Company/Year 2011 2012 2013 2014 2015<br>
Burberry <br>
Prada <br>
(NOTE: MIND THE CURRENCY DIFFERENCES AS ALL RESULTS SHOUL BE IN GBP, AND THE EXCHANGE RATE TO BE USED DEPENDS ON WHAT YEAR YOU’RE ANALYZING, MENTION THE EXCHANGE RATES YOU USED FOR EVERY YEAR)<br>
3. Critical reviews of ratio analysis (in general)<br>
• Limitations<br>
• Historical data<br>
• Business environment<br>
4. Conclusion<br>
• Are you going to buy the shares or not? Why? (Prove with graphs)<br>
• Are you going to buy shares for capital or dividend growth? Why?
