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REPORT OF TOD’S GROUP
COURSE: ACCOUNTING
Professors: Anna Raffoni and Franco Visani
April 2014
Cristina Munoz
Gino Ruli
Maria Virginia Sgargi
Martina Tacchella
ALMA GRADUATE SCHOOL
MASTER IN MARKETING COMMUNICATION AND NEW MEDIA
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INDEX
1. COMPANY OVERVIEW AND BRIEF HISTORY
1.1 Management and ownership structure………………………………………………………………………………………………………………………………….page 3
1.2 Organizational structure………………………………………………………………………………….…………………………………………………………………….page 4
1.3 The Group’s results in 2013………………………………….……………………………………………………………………………………………………………….page 5
2. INDUSTRY OVERVIEW
2.1 Trends and environment definition……………………………………………………………………………………………………………………………………….page 6
2.2 Players………………………………………………………………………………………………………………………………………….……………………………………….page 8
2.3 Porter’s Five Forces Analysis……………….……………………………………………………………………..………………………………………………………….page 9
3. ANALYSIS OF PROFITABILITY AND FINANCIAL RISK
3.1 Return of Equity (ROE) ………………………………………………………………………………………………………………………………………………………….page 9
3.1.1 Opportunity cost of capital (re) ………………………………………………………..…………………………………………………………….page 10
3.2 Return of Assets (ROA) ……………………………………………………………………………………………………………………………………………………….page 10
3.3 Return of Sales (ROS) ………………………………………………………………………………………………………………………………………………………….page 10
3.4 Net Assets Turnover Ratio (NATR) ……………………………………………………………………………………………………..……………………………….page 11
3.5 Financial Leverage (FL) ……………………………………………………………………………………………………………………….……………………………….page 13
3.6 Test of Liquidity: ……………………………………………………………………………………………………………………………………………..………………….page 13
3.6.1 Current Ratio…………………………………………………………………………………………………….…………………………………………….page 13
3.6.2 Acid test (Quick ratio) …………………………………………………………………………………………………………………………………….page 13
3.7 Test of Solvency………………………………………………………………………………………………………………………………………….……………………….page 14
3.7.1 Debt to equity ratio & D/E & A/E…………………………………………………………………………………………………………………….page 14
3.7.2 Non-‐Current Assets Coverage………………………………………………………………………………………………………………………….page 14
4. BENCHMARKING WITH GUCCI AND PRADA
4.1 Return of Equity (ROE) ……………………………………………………….……………………………………………………………………………………………….page 15
4.2 Return of Assets (ROA) ……………………………………………………………………………………………………………………………………………………….page 15
4.3 Return of Sales (ROS) ………………………………………………………………………………………………………………………………………………………….page 16
4.4 Net Asset Turnover Ratio (NATR) ………………………………………………………………………………………………………………………….…………….page 17
4.5 TEST OF LIQUIDITY: Current Ratio……………………………………………………………………………………………………………….……………………….page 17
4.6 TEST OF LIQUIDITY: Quick Ratio………………………………………………………………………………………………………………………….……………….page 17
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1. COMPANY OVERVIEW AND BRIEF HISTORY
Tod’s Group S.p.A is an Italian company that operates in the luxury fashion industry with three proprietary brands (Tod’s, Hogan and Fay) and one licensed brand (Roger Vivier). The group manufactures and distributes luxury leather ware, shoe ware and apparel on a global scale.
The company was originally founded by Filippo Della Valle, who started a shoemaking business at the beginning of the 1900s. The 1970s marked a significant expansion of the business, which turned the company into a modern industrial group. The founder’s grandson, Diego Della Valle, started to manufacture shoes for American department stores and went on to create the brands Tod's, Hogan and Fay in the mid-‐1980s. The brand Roger Vivier, maker of high luxury shoes, was acquired in the 1990s, while the latest acquisition of the group took place in 2007, with the incorporation of the brand of the Italian fashion designer Elsa Schiaparelli.
The group’s headquarters are located in Italy, in Casette d'Ete, Sant'Elpidio a Mare (Fermo).
1.1 Management and ownership structure
Tod’s Group is led by CEO Diego Della Valle and vice-‐president Andrea Della Valle, who preside over the corporate governance structure, composed of three main bodies: the Shareholders’ Meeting, the Board of Directors and the Board of Statutory Auditors.
The entire share capital of Tod’s S.p.A., operative holding of the group, is comprised by ordinary voting shares, which are listed on the Italian Electronic Stock Exchange managed by Borsa Italiana S.p.A. The current Share Capital, fully subscribed and paid-‐up, amounts to Euro 61,218,802.00, divided into 30,609,401 ordinary shares.
The current ownership structure (as of December 31st 2013) is illustrated in the following table:
SHAREHOLDERS N° OF ORDINARY SHARES % ON THE SHARE CAPITAL DIEGO DELLA VALLE Of which:
• directly • indirectly (DI VI Finanziaria di Diego Della Valle & C. S.r.l.) • indirectly through Diego Della Valle & C. S.r.l
17,374,624
252,000 16,426,172 696,452
56.762%
0.823% 53.664% 2.275%
CAPITAL RESEARCH AND MANAGEMENT COMPANY 1,539,339 5.028% OPPENHEIMERFUNDS INC. 1,131,633 3.697% ARNAULT BERNARD through Delphine s.a.s. 1,059,900 3.462% JOHO CAPITAL LLC 642,463 2.100%
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1.2 Organizational structure
The Group’s organizational configuration rotates around T O D’S S.p.A., which owns the brands TOD’S, HOGAN and FAY, holds the licenses of ROGER VIVIER and manages the group’s production and distribution.
The production structure is based on complete control of the production process, from creation of the collections to production and then distribution of the products. This approach is considered key to assuring the prestige of its brands.
Shoes and leather goods are produced in Group-‐owned plants (a total of 6 for shoes and 2 for leather goods), with partial outsourcing to specialized workshops. The buying of materials, the supervision of all the production phases and the control of the finished products, are centralized at the headquarters -‐ this is done for all of the products as well as for the ones created in the external laboratories.
With regard to the distribution network, the Group relies principally on three channels: DOS (directly operated stores), franchised retail outlets, and a series of selected, independent multi-‐brand stores.
The organization is rounded out by a series of commercial companies (sub-‐holdings), which are delegated complete responsibility for retail distribution through the DOS network. Certain of them, strategically located on international markets, are assigned major roles in product distribution, marketing and public relations, while simultaneously guaranteeing the uniform image that Group brands must have worldwide.
In the last few years, the Group’s strategy has been focused on the development of the DOS and franchising channels, which offer greater control and more faithful transmission of the individual brands.
A major expansion of the distribution network took place in 2013, with a total of 30 new DOS opened during the financial year. At December 31st, 2013 the single brand distribution network comprised 219 DOS and 84 franchised stores.
The Group has further consolidated its own presence in Europe and, above all, on the mainland Chinese market. At December 31st, 2013 the distribution network in China consisted of 57 boutiques (with Greater China total of 69 boutiques). At the same time, as part of its more comprehensive internationalization strategy, the Group launched a project to enter South American markets, by opening the first two TOD'S brand boutiques in that region, in Sao Paulo, Brazil.
2013 has been marked as well by significant developments in the distribution strategy, aimed to rationalize the Italian wholesale distribution network. The rationalization affected all the brands, but it was mainly evident on the results of HOGAN and FAY, which are the brands, among the Group’s portfolio, with the higher exposure to the Italian market and to the wholesale channel.
As regards Roger Vivier, the Group has launched a reorganization project which will ultimately result in the brand having its own, autonomous corporate organization.
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As concerns human resources, the total Group workforce amounted to 4,144 employees as of December 31s t, 2013, with an increase of 266 units with respect to the beginning of the year (3,878). You can see the composition of the workforce in the next chart:
The significant growth in personnel numbers achieved during 2013 is mainly due to the expansion of the direct distribution network and the reinforcement of the operating functions at corporate level.
1.3 The Group’s results in 2013
The following charts illustrate a breakdown of the Group’s revenues for 2013 by region, brand and product category:
1%
68%
31% Execuives
White collar
Blue collar
26%
11%
9%
22%
33%
Greater China
RdM
America
Europe
Italia
76%
7% 17%
Shoes
Clothes
Leather & Accessories
61% 23%
10% 6%
Tod's
Hogan
Roger Vivier
Fay
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The Group’s consolidated sales results for 2013 show, on the one hand, the positive effects of the international expansion -‐ mainly related to the TOD’S and ROGER VIVIER brands -‐ and, on the other, the impact of the strategic decision to rationalize the Italian wholesale distribution.
Thanks to the positive effects of the brand international expansion, the Group achieved for 2013 a significant growth on international markets, higher than 13 percentage points. Performance on the Americas market (+13.1% on a constant exchange rate) and Greater China market (+21.2% on a constant exchange rate and 24.5% of the total consolidated turnover) have been particularly brilliant.
Sales on the Italian market, on the other hand, amounted to 323 million euros in 2013; the 15.9% decrease, compared to FY 2012, can be mainly explained by the already mentioned rationalization of the wholesale distribution on the domestic market. The sales trend in the Italian stores remains in general very volatile.
With regard to the rest of Europe, the Group’s revenues totaled 207.8 million euros in 2013, with an increase of 3.8% from FY 2012 (+4.3% at constant exchange rates); particularly strong results were achieved in UK and in France.
Finally, in the “Rest of the World” area, the Group’s sales totaled 108.9 million euros, increasing by 7.4% as compared to FY 2012; the growth climbs to 16.1% at constant exchange rates, mainly due to the significant weakening of the Japanese Yen against the euro.
With regard to the categories, shoes are confirmed as the core business of the Group, representing 76.5% of consolidated sales. Leather and accessories amount to 16,6%, while apparel represents 6,8% of sales.
By brand, the Group’s revenues for 2013 can be broken down as follows: Tod’s (59,7%); Hogan (22,4%); Roger Vivier (11,8%); Fay (6,1% ).
(Further increased the contribution of the direct channel: in 2013 revenues generated by DOS channel represent 63.8% of consolidated sales)
2. INDUSTRY OVERVIEW
2.1 Trends and environment definition
Analyzing the recent trends in the luxury fashion industry, we see the first moderation since the 2009 financial turmoil; in 2013, the market left behind its double-‐digit growth, losing the consolidated strength it always displayed in the past 10 years.
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Among the major causes we can identify the euro fluctuations, which have penalized market performance in 2013, despite the real growth outpacing 2012, the purchasing reduction on holiday season and a national market increasing polarization.
From an international point of view, we observe a tendency from the market to select and buy brands and goods more because of their provenience and brand culture than from quality and price -‐ "Altagamma research insight" (see it in the sources) describes this trend as increasing of connection between brand cultural identity and purchases.
Stagnation, after a first quarter more in line with 2012, hit harder on second and third quarter of 2013, decreasing sales in every segment of the personal luxury goods market.
Under these circumstances, retail has been the most affected business, with heavy drops in sales and profit. In order to face the crisis, and despite the deceleration of organic growth, retailers are focusing their efforts in side-‐activities like renovation, relocation and online expansion.
Practically, we comprehend on the one hand a slowdown in the in-‐store demand in every market, particularly in the European and American ones (relevant exceptions are represented in this respect by the Chinese and Japanese markets), and on the other hand an exponential increase in the online demand of luxury products, with China and U.S. leading the trend.
The increasingly more relevant role of the Chinese demand in the international market -‐ both in-‐store ad online -‐ is changing the productive and decisional choices of many brands, driving them to pursue organizational and managerial strategies which are aimed to acquire a relevant share of this market.
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Analyzing more specifically the category Tod’s group operates in -‐ named the luxury soft accessories sector – we can observe that shoes and leather goods lead the way with the sharpest up trading ever experienced in the luxury goods industry. Being less influenced by the crisis in comparison to other categories of luxury items, leather goods are now more than ever demanded by the market.
2.2 Players
Focusing on the market players, we see that the luxury goods sector includes companies that develop, produce, market, distribute and sell high-‐end apparel, jewelry, watches, leather goods and accessories. The sector is generally subdivided in terms of:
• Diversified groups/holdings: companies that owns diversified brand portfolios and more in general have grown by acquisition
• Hard luxury company: companies that produce mainly watches, jewelry and pens
• Soft luxury company: companies that produce high-‐end apparel and leather goods
In this analysis, however, we will take in consideration only two well-‐known firms, Prada S.p.A. and Gucci S.p.A. which -‐ despite their being part of diversified groups or holdings -‐ will be here analyzed as soft luxury company, in order to permit us a better comprehension of the analysis. As following:
• Prada S.p.A. is an Italian fashion company with a global powerhouse in the luxury goods market, as well as a business icon. The Group owns several brands like Miu Miu, Church's, Car Shoe and Prada. Focusing on the production of men's and women's leather goods, clothing and footwear, Prada group produce in eleven company-‐owned sites, ten of which are located in Italy and one in Great Britain, and by a network of external contractors. The Group's distribution network extends across 70 countries, counting 491 directly-‐operated stores (at 31 July, 2013), which form the backbone of the group's international expansion strategy, and a selection of department stores and multi-‐brand retail spaces in the most significant cities and locations.
• Gucci S.p.A., on the other hand, founded in Florence in 1921, is one of the world's leading luxury fashion brands. The company, owned by the French multinational company PPR (Kering), is part of the Gucci Group, which includes Gucci, Yves Saint Laurent, Sergio Rossi, Boucheron, Gucci Group Watches, Bottega Veneta, Alexander McQueen, Stella McCartney and Balenciaga. Being one of the biggest-‐selling Italian companies, The Group directly operates stores in major markets throughout the world and wholesales products through franchise stores, duty-‐free
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boutiques and leading department and specialty stores. Its most important product category are clothing and leather goods.
2.3 Porter’s Five Forces Analysis
3. ANALYSIS OF PROFITABILITY AND FINANCIAL RISK
In this section we are going to use some ratios that will give us a clearer picture of Tod’s profitability and financial situation.
3.1 Return of Equity (ROE)
Calculation
This ratio measures a firm’s efficiency at generating profits from every unit of shareholder’s equity. Now with its calculation we will see how well Tod’s is using investing funds to generate earnings growth. We used this formula to calculate it and an example:
!"# = !"# !"#$%&!"#$%& !"#!"#! =
145.737.000763.987.000 = 0,19
Interpretation
The chart shows an increasing ROE over the years. We can see a quite fast increase between the year 2004 and 2005, then until 2008 it kept on growing at a slower rate. After the year 2008, there was a small decrease that could be explained by the crisis. Thereafter, it recovered fast.
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3.1.1 Opportunity cost of capital (re)
The ROE is the actual return and the opportunity cost of capital is the expected return, we are going to use “re” as a constant value (as we saw in class) through the 10 years.
!" = !"#$ !"## !"#$%&'$"& rf + !"#$ !"#$%& s !" = 5% + 5,68% = 10,68%
By doing a comparison between the two we can observe that in the year 2003 and 2004 the ROE was lower than the “re” meaning that Tod’s shareholders weren’t very satisfied. After that, the ROE is always higher than the expected return which shows an improvement.
3.2 Return of Assets (ROA)
Calculation
This ratio gives an idea of how effectively the company is converting the money it has, to invest into net income. We are going to evaluate the management’s ability to use its assets effectively. We used this formula to calculate it and an example:
!"# = !"#$ 1 − !!"# !""#$" !"#!"#! =
208.837.000 (1 − 0,29838675)898.477.000 = 0,163
Interpretation
The graph shows an increasing ROA over the years. It starts with 5,55% in 2003, increasing until 12,58% in 2007, then, it slows down until 2009, after, it grows again reaching 16,31%.
3.3 Return of Sales (ROS)
Calculation
6,45% 7,29%
11,26% 12,78% 13,89% 13,95% 13,05%
17,91% 19,70% 19,07%
13,54%
5,00%
15,00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
ROE TREND (10 years)
TOD'S
AVERAGE
5,55% 6,43% 9,51%
11,47% 12,58% 12,41% 11,97% 14,34% 15,75% 16,31%
11,63%
5,00%
10,00%
15,00%
20,00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
ROA TREND (10 years)
TOD'S
AVERAGE
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We are going to measure the earnings generated for a particular level of sales. We used this formula to calculate it and an example:
!"# = !"#$ (1 − !)
!"#$! !"#!"#! = 208.837.000 (1 − 0,29838675)
963.132.000 = 0,15
Interpretation
We can see in the graphic an increasing trend in general, but there was a standstill from 2006 to 2009, where the efficiency of the company didn’t increase. After that it continues growing, and this means an increasing efficiency.
3.4 Net Assets Turnover Ratio (NATR)
Calculation
We are going to measure the operating efficiency, through the analysis of amount of sales/revenues generated per euro of assets. We used this formula to calculate it:
!"#! = !"#$! !"#"$%"!"# !""#$" !"#$!"#" =
787.539.000756.597.000 = 1,04
Interpretation
In the chart to see that in general the usage of its assets was improving, except the period of the global crisis (2007,2008, 2009), where it was a bit deteriorated.
By looking at the NOWCT we see a decreasing trend, and we can say that their ability to contain the investments and to use the trade payables to finance this investment got worse over time, with a peak in 2009 due to the crisis. Also, by looking to the Fixed-‐Asset Turnover (FAT) we can see a clear growing trend that means that the company was able to fully exploit its structure.
6,70% 7,19%
10,50%
11,72% 11,97% 11,82% 12,07%
13,77%
15,01% 15,21%
11,60%
5,00%
7,00%
9,00%
11,00%
13,00%
15,00%
17,00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
ROS TREND (10 years)
TOD'S
AVERAGE
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The ROS (EBIT/Revenues) is the margin on revenues, for example in which percentage of your revenues is transformed in earnings by your activity. Multiplying the ROS by the net asset turnover (Revenues/Net Assets) we obtained the RONA (EBIT/Net Assets, similar to ROA).
In general the ratios follow the same trend, which means that in 10 years they didn’t had a problem managing the working capital or the fixed assets, except from 2008 to 2009 where the company is investing too much money compared to the level of revenues, as we can see because the RONA decreased while the ROS increased.
In general the ratios follow the same trend, so we can say that they were correctly financing their activity. Except for the year 2011 where we can see a decreasing ROE and an increasing RONA which can be probably explained by too many debts or a high interest ratio paid to the banks.
0,83 0,89 0,91 0,98 1,05 1,05 0,99 1,04 1,05 1,07
2,07 2,00 1,84 1,80
1,92 1,86
1,63
1,90 1,85 1,83
1,37
1,60 1,78
1,99 2,16
2,24 2,34
2,12 2,22
2,37
0,50
1,00
1,50
2,00
2,50
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
NATR Trends (10 years)
NATR
NOWCT
FAT
6,70% 7,19%
10,50% 11,72% 11,97% 11,82% 12,07% 13,77% 15,01% 15,21%
5,55% 6,43% 9,51%
11,47% 12,58% 12,41% 11,98% 14,44%
15,75% 16,31%
0,00%
5,00%
10,00%
15,00%
20,00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
RONA & ROS COMPARISON (10 years)
ROS
RONA
6,45% 7,30% 11,26% 12,78% 13,89% 13,95% 13,05%
17,91% 19,70% 19,08%
5,55% 6,43% 9,51% 11,47% 12,58% 12,41% 11,98%
14,44% 15,75% 16,31%
0,00%
10,00%
20,00%
30,00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
RONA & ROE COMPARISON (10 years)
ROE
RONA
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3.5 Financial Leverage (FL)
Calculation: We will now measure the impact of financing decisions on Tod’s profitability. We used this formula to calculate it and an example:
!" = !"# !"#$%&!"#$ (1 − !) !
!"# !""#$"!"#$%& !"!"#! =
145.737.000208.837.000 (1 − 0,29838675) !
898.477.000763.987.000 = 1,17
Interpretation
The financial leverage during the 10 years was always higher than 1 which means that its financial policy had a positive impact on the company’s profitability. By considering its two components, as you can see in the chart, we notice an increasing gearing, starting from 2009 which probably had a positive impact on shareholders’ return.
3.6 Test of Liquidity:
3.6.1 Current Ratio
Calculation
With this test we will be able to analyze Tod’s ability to repay its maturing debt, and we will show you its comparison over a 10 years period. We used this formula to calculate it and an example:
!" = !"##$%& !""#$"
!"##$%& !"#$"!"%"&' !"!""# = 542.346.000146.455.000 = 3,71
3.6.2 Acid test (Quick ratio)
Calculation
We are going to use this stricter test (which excludes only the inventories) in order to predict the risk of the company. We used this formula to calculate it and an example:
!"#$ !"#! = !"#$% !""#$"
!"##$%& !"#$!"!#!$% !"!""# = 346.295.000146.455.000 = 2,36
1,05 1,02 1,02
0,99 1,00 1,01 1,00 1,02 1,01
0,99
1,11 1,11
1,16
1,12 1,10 1,11
1,09
1,22 1,24
1,18
1,16 1,13
1,18
1,11 1,1 1,12
1,09
1,25 1,25
1,16
0,95
1,05
1,15
1,25
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Financial Leverage (10 years)
Cost of borrowing funds
Gearing
Financial leverage
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Interpretation
We can see looking to the Current Ratio, that Tod’s was financially conservative, because of its high values. About the Acid test, we can tell that the company wasn’t perceived as having a high risk in short term.
Both ratios follow an increasing trend till 2008, where they grew faster and then, in 2009 they dropped, after, in 2010 they slowly started to grow again.
3.7 Test of Solvency
3.7.1 Debt to equity ratio & D/E & A/E
Calculation: We used these formulas to calculate them with examples:
!/! = !"#$% !"#$ !"#$%#& !"#$!$%$!&"#!"#$%&
!/!2009 = 27.513.000
659.933.000= 0,04
!/! =
!"!#$ !""#$"!"#$%& !/!!""# =
847.361.000659.933.000
= 1,27
Interpretation
The A/E ratio represents the general debt situation of the company without considering the specific kind of debts. For example in 2009 the ratio of 1,27 means that equity supports the great part of the total assets, highlighting a low level of debt load. D/E is particularly focused on financial debts and does not consider for instance debts versus suppliers, employees, public administrations, etc. The value of 0,04 shows a very low level of financial debts. Summarizing both the two ratios are representative of a very strong financial position.
3.7.2 Non-‐Current Assets Coverage
Calculation: We used this formula to calculate it and an example:
!"#"!"#"= 618.441.000 + 83.315.000
371.041.000 = 1,89
2,77 2,87 2,83 2,94 2,94 3,03 3,70
2,54 2,62 3,25
1,61 1,59 1,70 1,67 1,54 1,55
2,36
1,60 1,66 1,96
0,00
2,00
4,00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Liquidity test (10 years)
CURRENT RATIO
ACID TEST
1,59 1,71
1,83 1,97 2,00
2,05
2,30
1,89 1,99
2,13
1,50 1,70 1,90 2,10 2,30 2,50
NCAR (10 years)
NCAR
0,06 0,05 0,05 0,04 0,04 0,05 0,04 0,12 0,15 0,11
1,28 1,30 1,35 1,36 1,35 1,33 1,27 1,48 1,52 1,40
0,00 0,50 1,00 1,50 2,00
Solvency test (10 years)
D/E
A/E
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Interpretation
We can see that the company was covering its non-‐current assets with its long term sources of financing.
4. BENCHMARKING WITH GUCCI AND PRADA
4.1 Return of Equity (ROE)
In the following table you can see the comparison of the ROE of Tod’s, Prada and Gucci in a trend of three years (2009, 2010, 2011):
TOD’S PRADA GUCCI 2009 13,05% 15,14% 6,03% 2010 17,91% 14,68% 36,39% 2011 19,69% 32,08% 64,21%
By looking at the ROE of Prada and Gucci, two main competitors of Tod’s, we can confirm the same trend of the increase of the ratio throughout the years, with a little slow down in 2009, and a fast increase after that.
While Tod’s ROE increases with a regular trend, we can see how Gucci’s ROE has a fast increase in just 2 years, moving from a small value to a strongly high one (64%).
4.2 Return of Assets (ROA)
In the graph, we are going to see the comparison between the ROA of each company, for the years 2009, 2010 and 2011:
13,05% 17,10%
19,69%
15,14% 14,68%
32,08%
6,03%
36,39%
64,21%
-‐5%
5%
15%
25%
35%
45%
55%
65%
2009 2010 2011
ROE
TOD'S
PRADA
GUCCI
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In the following table, we are taking into consideration to analyze for 2009 how the three companies are converting the invested money into net income. We considered just 2009 as a reference because we saw a significant difference between the ROA of the 3 companies in that period.
TOD’S PRADA GUCCI ROA 11,97% 7,04% 1,67%
Total Assets 847.361.000 2.176.054.000 226.236.723 Net Income 86.140.000 100.585.000 -‐1.503.519
For what we see in the table, we think Tod’s was the company that performed the best compared with the two competitors in that year. We can say so by looking at the comparison between the quantity of total assets and the net income.
On the other hand, Prada was performing less effectively because, compared with Tod’s, they had more than double total assets, but they were not able to generate enough net income.
By looking at Gucci’s situation, its negative ROA suggests that the company is not properly utilizing its capital (total assets) and may have a questionable management. We can just assume this because there may be others reasons that explain its negative trend, such as the economic crisis which we have already said started in 2008.
4.3 Return of Sales (ROS)
TOD’S PRADA GUCCI 2009 12,07% 7,58% -‐1,39% 2010 13,77% 7,93% 12,27% 2011 15,01% 13,35% 26,62%
Looking the trends of the 3 companies during the 3 years we could pick Tod’s as the safest one because it has a constant trend. The others have an increasing trend as well, but with strong differences among the years. Also, we can say that Gucci had a bad year in 2009, probably due to the economic crisis, but after that it quickly recovered.
11,98% 14,34% 15,75%
7,04% 7,23%
16,41%
1,67%
10,47%
18,74%
-‐2,00%
3,00%
8,00%
13,00%
18,00%
2009 2010 2011
ROA
TOD'S
PRADA
GUCCI
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4.4 Net Asset Turnover Ratio (NATR)
TOD’S PRADA GUCCIO GUCCI 2009 0,99 1,16 3,71 2010 1,04 1,19 3,59 2011 1,04 1,20 3,41
Looking at the previous table, we are seeing how the assets are being used by the companies: Gucci has for sure the best use of its assets, it follows Prada and then Tod’s.
4.5 TEST OF LIQUIDITY: Current Ratio
TOD’S PRADA GUCCI 2010 2,54 0,96 1,25 2011 2,62 1,38 1,27 2012 3,25 2,20 1,48
While Tod’s looks financially conservative, Gucci is in the average with a ratio between 1 and 2, Prada instead in 2010 has a Current Ration lower than 1 which suggests that the company may not be able to pay off its obligations if they came due at that point, that’s why we assume their financial health is not good, but it doesn’t necessarily mean that it will go bankrupt because there are many ways of financing. By looking at the two following years, we can see that Prada recovered its financial health.
4.6 TEST OF LIQUIDITY: Quick Ratio
TOD’S PRADA GUCCI 2010 1,59 0,68 1,24 2011 1,65 0,95 1,26 2012 1,95 1,56 1,47
We can see that Tod’s has the best liquidity position (strictly speaking), than it follows Gucci and Prada. As we saw before with the current ratio, the latter may had difficulties.
YEAR 2010 CURRENT RATIO QUICK RATIO TOD’S SPA 2,54 1,59 PRADA SPA 0,96 0,68 GUCCIO GUCCI SPA 1,25 1,24
By analyzing both CR and QR, Tod’s highlights the best liquidity position among the three. Gucci shows very close values, with a very little difference between CR and QR. This situation is related to a very little amount of inventory, so we can say that Gucci has a strong liquidity situation (QR>1). Prada shows worse ratios, with a significant difference between CR and QR (large inventory) and QR<1 (this might be the reason of potential problems in paying short term liabilities with money obtained by current assets).
