I.T and Hauhaus Essay

As they ar the competitor within the merchandise, the selling strategies to be use are similar. Therefore, it is easier to collect and compare the fiscal entropy and tie out the conclusion to see which participation would be outlayier to invest. The report covers the comp whatever and industry background, proportionality synopsis, hereafter forecast of cardinal companies performance. 2)Company Background Bauhaus (0483, HK) Bauhaus was launch in 1991. It has been listed on HKEX neckcloth commercialise since 2005. There are much than 200 retails store and over corners and point of sales in Hong Kong, Macau ,mainland mainland chinaware and Taiwan,.Apart from selling different unlike brand, like Cheap Monday, G-Star, EVISU etc, Bauhaus likewise building the offspringal anaesthetic brand desire Salad, T Tough Jeansmith and 80/20. It is a leading retail store in selling occasional(a) wear, especially for jeans item. There are 234 Bauhaus shops in Asia. Using the w holesale strategy, Bauhaus kitty expand the lineage from Asia to Western country. In the future, it may diversify its re flake line like launch more extraneous brand to accession 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 Group has an ex gosive self managed retail network extending to nearly 450 stores crosswise Greater China with staff around 4,800. The brands are well recognised in Thailand, Saudi Arabia, Australia, the Philippines and France. More stores exit be opened in these places in the future. The feature of I. T retail store is group some(prenominal) brands in a sizable retail location. It owns a number of in-house brands liked 5CM, fingercroxx and X- too erect, as well as distributing European and lacquerese designers brands such as French Connection and A Bathing anthropoid Comme des Garcons, D&G, etc. 3)Industry OutlookHong Kong is one of the invent hubs in Asia. There are a wind variety of topical anesthetic and international modality brand locate in that respect flagship store in Hong Kong. The competitive is dynamic and incentive. Hong Kong consumers are volitioning to spend capital on counterfeit and clothing. As the purchasing power of is full(prenominal), so the demand of spurt point of intersection is huge. According to CIA THE WORLD FACTBOOK, this entry gives the gross domestic convergence (GDP) or value of all final goods and services produced within a nation in a given year. From this effect, Hong Kong is ranking to 37 afterwards compared to 227 countries in the year of 2010.According to the information from Asia Case Research focus on (ACRC), it shows that retail is the 2nd largest sector in the service industry that accounted for 85. 7% of Hong Kongs GDP. Also, The Census and Statistics Department (CSD) indicate that the value of total retail sales in October 2011, provisionally estimated at $34. 2 billion, enlarged by 23. 1% over a year earlier. Analyzed by wide type of retail outlet and comparing October 2011 with October 2010, wearing apparel matu proportionalityn 14. 6% footwear, allied harvest-festivals and other clothing accessories increase 11. 3%.This data proofs that the demand of mold items is huge and purchasing power in this piece is relatively high. Besides, tourists come to Hong Kong are increase to each one year they set about with high purchase power in look items, especially those Chinese tourists. According to the statistics released by the Immig ration 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 business has a growth during April of 20010 to Feb of 2011.It is because the economic surround is advance than past year. Hong Kongs GDP fell in 2009 as a chair of the global financial crisis, but a convalescence began in third quarter 2009, and the economic remains grew nearly 6. 8% in 2010. In addition, Chinas providence growth fast, the performance of its thriftiness growth is with child(p)er than the other country. And Hong Kongs economy is influenced by China very much. In the future, we buttocks see that Hong Kongs retailing business will growth quick. It seems a great chance to develop the retail business however, in that location are some risks 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, H&M and Monki, etc which brook good wrong and trendy design merchandises. They regarded Hong Kong as the stepping stones to go into the China market. With more mark in Hong Kong, the competition between them is becoming more intensive and serious. Therefore, the local fashion retail merchants induce to build up their compe titive advantages to withstand the electric shock from those foreign brands.Also, because of the inflation of Hong Kong and China, the cost of the materials, labor and transportation is getting high(prenominal)(prenominal). plume manufacturing is a labor intensive activity. The cost of garment is mainly from the increasing labor cost and transportation cost. In secernate to deal with, the retailer probably need to order more amount of quantity each time to achieve the economy of scale, so the cost will be lower. Furthermore, as we know that Hong Kongs rental price of shop is the send-off three 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 kale of the fashion retailers. To conclude , Hong Kong fashion retail market is still positive. There are many great luck for Hong Kong fashion retail to expand its business. However, there are some doubt need to be acquit financial aid, such as the entrance of foreign brands and the unstable rental cost.So, the local fashion industry needs to draw a competitive strategy to deal with. For example, local fashion retailers shadow use the attractive marketing strategy, liked collaboration with other brands, provide excellent customer services and building great brand image. 4) proportionality analysis i) Test for advantageousness I. T (in HKD 000)Bauhaus (in HKD 000)* a)Return on Equity (Net income / Average stockholders virtue)416945/(1843212+1477723)/2 =25. 1%25. 1% b)Profit margins (Net income/ Net Sales)416945/3834422 =10. 9%11. 4% ii)Test for liquidity I. TBauhaus c) underway proportionality modern Asset/ Current liabilities1873282/1012495 1. 85%3. 3 d)Quick balance (Current Assets- Inventory)/ Current liabilitie s(1873282-736717)/1012495 =1. 1%1. 7 e)Inventory Turnover Cost of goods sold/ Average Inventory1405482/(736717+394520)/2 2. 52. 0 iii)Test for Solvency and blondness position I. TBauhaus f)Debt/Equity Ratio Total liabilities/ Total stockholders equity(1012495+429852)/1843282 0. 78(1497+126461)/494938 0. 26 iv) merchandise test I. TBauhaus g)Price/Earnings ratio Current Market Price per grapple/ Earning per Share4. 88/0. 33 =14. 82. 98/0. 32 =9. 3 h)Dividend Yield Ratio Dividends per parcel of land/ Market price per share0. 146/4. 8 =3. 0%0. 177/2. 98 =5. 9% *Quote from yearbook 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 Profit exponent Profitability is a basal tone of the overall success of the corporation. This is a class of ratios that are used to assess a businesss ability that generate lolly compared to its expenses and other relevant costs incurred. To determine rather the fellowship is precious for expend or non which need to get high utilityability when compared with competitors community.However, in fashion industry, the sales revenue is seasonal. For example, the sales revenue is much higher(prenominal)(prenominal) during Christmas and Chinese New category in Hong Kong. So, we should not compare the retailers fourth-quarter profit margin with the profit margin from the same period a year before because it would be far more informative. a)Returns on Equity This ratio indicating how much income was clear for every dollar invested by the stockholders. ROE give the gate buoy reflect if they hurt used the money that invested in the political party 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 lend oneself the resources that they buzz off invested. Two companies go through a similar result of this ratio. both two companies put forward generat e about 20% of income using stockholders equity. It is because retail store is not very high coronation to enter the market it has higher ROE when compare to other industry liked turn of events 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 exponent 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 base hit higher risk that a decline in sales will erase profits and result in a net loss, or a negative margin. The higher profit margin meaning 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 minimize the expense. Bauhaus has a higher profit margin in 2010/2011. It shows that they have put effort to maximize the profit. Since compared wit h last year (10. 5%), it has been increased. i) Test for liquidly It is a class of financial metrics that is used to determine a companys ability to pay off its short-terms debts obligations. A companys ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are quest payment. Bankruptcy analysts frequently use the liquidity ratios to determine whether a company will be able to continue as a loss concern. c) Current ratio This ratio measures the ability of the company to pay received debts as they become due. It is the important ratio that we can mark 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, live ratio should be in appropriate level. Ratio is too high convey the company did not fully give the present-day(prenominal) assets to generate the profit. Bauhaus have a higher on-going ratio than I. T, it means Bauhaus ability of move the debts is greater than I. T. It can more practice legitimate 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 considerateness on the inventory factor. It is more representatives to measuring rather the company can return the current liabilities immediately. The quick assets included Cash, Accounts receivable etc. These assets can return into cash in short time.Inventory will not be counted in this ratio as it may need commodious- life time to return into cash and a risk of cannot be sold. It is a very important ratio for fashion industry, since the trends cycle of clothing is fast, the product may be in today, but out day tomorrow. So, fashion retailer should not keep too many inventories. Bauhaus have a higher in Quick ratio, however, compared with the current ratio, it is a great pas seul on two ratios. It means that the inventory 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 inventory through different method, liked big sale, spoil one get one free 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 upset lead to shorter cycle on inventor y. Since inventory is not easily being sold out and read into cash in a short period, fashion retailer should not hold too much inventory. Since fashion items are easily worn-out(a) 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 impact Since Bauhaus have a lower level on inventory, its inventory turnover will much slower than I. T. It may tie up the bully if the inventory cannot be sold. So, company should reduce the level of inventory. I. T has a greater performance on inventory turnover. 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 chide money. And the equity financing method is more safety and no fixity interest burden. v) Market Test Market test relate the current market price of share of stock to an indicator of the return that aptitude accrue to the investor. It based on the share markets wisdom 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 kindred between the current market price of the stock and its earnings per share. The higher the ratio, the higher the perceived quality of the earnings by the share market. It besides 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 altern atives. The higher of result, the better performance. Bauhaus have a higher result, it shows that they have higher dividend-paying performance. If the investor wants 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 is seasonal, like The Chinese New Year of 2011 was in February so the sales turnover must be high in that moment. afterwards 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 plot shows that turnover have been increased gradually during 2007 to 2011. Although 2008-2009s local economy is in down turn, the company still can strive to increase of turnover. It i s predict that the company will probably maintain the maturation since the economy situation is recovering and the local residents will spend more money on clothing items. The plat shows that I. T had undergone a diminution 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 improvement 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 lodge 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 vary 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 get office purchase many Japanese fashion 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 rattling culture throughout the Group, the Internal Audit Department has implemented an annual internal 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 terra firma 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 currentness risk and operation cost increment risk. The Group continuously monitors its foreign exchange position and, when necessary, will hedge foreign exchange vulnerability 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 incessantly happen. The company should build up a risk management system to minimize the risk of company operation. 7)Conclusion The financial performan ce 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.