I.T and Hauhaus Essay

As they ar the competitor within the mart, the selling strategies to be utilise are similar. Therefore, it is easier to collect and equate the financial data and drive come out of the clo delimitate the conclusion to see which club would be expenditureier to invest. The draw covers the fel woefulship and labor background, dimension analysis, future forecast of ii companies consummation. 2)Company Background Bauhaus (0483, HK) Bauhaus was make up in 1991. It has been listed on HKEX stock market since 2005. There are to a greater extent than than 200 retails entrepot and over corners and point of sales in Hong Kong, Macau ,mainland chinaware and Taiwan,.Apart from selling divers(prenominal) foreign brand, desire Cheap Monday, G-Star, EVISU etc, Bauhaus besides human bodying the local brand liked Salad, T Tough Jeansmith and 80/20. It is a leading retail store in selling periodic wear, especially for jeans item. There are 234 Bauhaus shops in Asia. Using the whol esale dodging, Bauhaus give the sack expand the bil allow from Asia to Western country. In the future, it may diversify its harvest-feast line like launch to a greater extent foreign brand to adjoin 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 extensive self managed retail lollywork extending to nearly 450 stores across Greater China with staff around 4,800. The brands are well authentic in Thailand, Saudi Arabia, Australia, the Philippines and France. More stores bequeath be opened in these places in the future. The feature of I. T retail store is group approximately(prenominal) brands in a sizable retail location. It owns a number of in-house brands liked 5CM, fingercroxx and X-large, as well as distributing European and Japanese planers brands such as French Connection and A Bathing anthropoid Comme des Garcons, D&G, etc. 3)Industry OutlookHong Kong is one of the mood hubs in Asia. There are a wind variety of local and world(prenominal) elan brand locate there flagship store in Hong Kong. The rivalrous is dynamic and incentive. Hong Kong consumers are go outing to spend capital on means and habiliment. As the purchasing power of is steep, so the ask of fashion reaping is huge. tally to CIA THE WORLD FACTBOOK, this entry gives the gross domestic product (GDP) or value of all final genuines and services produced within a landed estate in a given category. From this result, Hong Kong is ranking to 37 after compared to 227 countries in the form of 2010.According to the information from Asia Case Research Centre (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, increased by 23. 1% over a year earlier. Analyzed by broa d shell of retail outlet and comparing October 2011 with October 2010, wearing apparel increase 14. 6% footwear, allied products and other clothing accessories increase 11. 3%.This data proofs that the demand of fashion items is huge and purchasing power in this region is comparatively juicy. Besides, tourists come to Hong Kong are increasing each year they bring with high bribe power in fashion items, especially those Chinese tourists. According to the statistics released by the Immig symmetryn 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 taxation of retailing business has a ripening during April of 20010 to Feb of 2011.It is because the economic environment is dampen than past year. Hong Kongs GDP fell in 2009 as a result of the global financial crisis, but a recoin truth began in ternion quarter 2009, and the scrimping grew nearly 6. 8% in 2010. In addition, Chinas economy offset fast, the performance of its economy growth is greater than the other country. And Hong Kongs economy is influenced by China actually ofttimes. In the future, we hindquarters see that Hong Kongs retailing business will growth rapidly. It seems a great chance to develop the retail business however, there are some attempts 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, ever 21, Zara, H&M and Monki, etc which provide good impairment and trendy design merchandises. They regarded Hong Kong as the stepping stones to go into the China market. With more branding in Hong Kong, the rivalry between them is becoming more intensive and serious. Therefore, the local fashion retailers hand over to build up their rivalrous advantages to withstand the impact from those foreign brands.Also, b ecause of the splashiness of Hong Kong and China, the represent of the materials, grok and transportation is dieting higher(prenominal). Garment manufacturing is a labor intensive activity. The cost of garment is mainly from the increasing labor cost and transportation cost. In raise to deal with, the retailer likely quest to order more amount of quantity each time to get to the economy of scale, so the cost will be reduce. Furthermore, as we know that Hong Kongs term of a contract worth of shop is the first three high-ticket(prenominal) in the world. The term of a contract footing has been increasing rapidly in the juvenile years.From 2010 to 2011, the rental equipment casualty 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 expediency of the fashion retailers. To conclude, Hong Kong fashion ret ail market is console positive. There are many great opportunity for Hong Kong fashion retail to expand its business. However, there are some uncertainty need to be pay maintenance, such as the entrance of foreign brands and the unstable rental cost.So, the local fashion industry needs to create a competitive strategy to deal with. For example, local fashion retailers screwing use the hyp nonic marketing strategy, liked collaboration with other brands, provide excellent node services and building great brand image. 4) symmetry analysis i) Test for lucrativeness I. T (in HKD 000)Bauhaus (in HKD 000)* a)Return on uprightness ( crystallize income / Average stockholders equity)416945/(1843212+1477723)/2 =25. 1%25. 1% b)Profit bounds (Net income/ Net Sales)416945/3834422 =10. 9%11. 4% ii)Test for liquidity I. TBauhaus c) electric latest Ratio Current Asset/ Current liabilities1873282/1012495 1. 85%3. 3 d)Quick Ratio (Current Assets- line)/ Current liabilities(1873282-736717)/10 12495 =1. 1%1. 7 e)Inventory upset Cost of goods sold/ Average Inventory1405482/(736717+394520)/2 2. 52. 0 iii)Test for Solvency and equity position I. TBauhaus f)Debt/Equity Ratio Total liabilities/ Total stockholders equity(1012495+429852)/1843282 0. 78(1497+126461)/494938 0. 26 iv) trade test I. TBauhaus g) wrong/ pay ratio Current food market Price per Share/ Earning per Share4. 88/0. 33 =14. 82. 98/0. 32 =9. 3 h)Dividend concede Ratio Dividends per share/ Market price per share0. 146/4. 8 =3. 0%0. 177/2. 98 =5. 9% *Quote from annual report* both financial reports announced in different date- Bauhaus- For the year end 31 March 2011 I. Tfor the year ended 28 February 2011 i )Test for Profit king Profitability is a primary measure of the overall success of the caller. This is a class of ratios that are used to assess a businesss ability that render loot compared to its expenses and other pertinent costs incurred. To determine rather the familiarity is valuable for inv esting or non which need to get high profitability when compared with competitors political party.However, in fashion industry, the sales revenue is seasonal. For example, the sales revenue is a lot higher during Christmas and Chinese New Year in Hong Kong. So, we should not compare the retailers fourth-quarter profit margin with the profit margin from the equal period a year before because it would be far more informative. a)Returns on Equity This ratio indicating how more than income was earned for every sawbuck invested by the stockholders. hard roe tail reflect if they surrender used the coin that invested in the caller to contribute lots more income. If the ROE is low, it shows that the decreases of the investors will not be high.And the community doesnt utilize the resources that they take in invested. Two companies have a similar result of this ratio. Both twain companies stub generate about 20% of income using stockholders equity. It is because retail store i s not very high investment to enter the market it has higher ROE when compare to other industry liked Construction Company. In order to measure the caller is worth to investing on ROE ratio should not be humble than 15%. So, two companies are worth to invest on. b)Profit margin Profit margin is an indicator of a companys pricing strategies and how well it tells costs.It is calculated by finding the net profit as a percentage of the revenue. A low profit margin indicates a low margin of safety higher take a chance that a decline in sales will erase bread and result in a net loss, or a proscribe margin. The higher profit margin means 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 with last year (10. 5%), it has been increased. i) Test for liquidly It is a cl ass of financial metrics that is used to determine a companys ability to pay mutilate its short-terms debts obligations. A companys ability to turn short-term assets into bullion to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts ofttimes use the liquidity ratios to determine whether a company will be able to lapse as a going mention. c) Current ratio This ratio measures the ability of the company to pay live debts as they incur due. It is the all important(predicate) ratio that we can identify if the company has a good specie flow.If the debts recalled but the company does not have enough funds to pay it, the company may be asked to bankrupt. On the other hand, genuine ratio should be in appropriate level. Ratio is in addition high means the company did not fully utilize the up-to-the-minute assets to generate the profit. Bauhaus have a higher current ratio than I. T, it means Bauhaus ability of returning the debts is grea ter than I. T. It can more utilize current 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 mend 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 consideration on the size up 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 longer time to return into cash and a seek 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 variation on two ratios. It means that the take stock tied up its current assets. It is not a good issue on a fashion company. They need to gross(a) the adventure 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, buy 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(prenominal) inventory turnover lead to shorter cycle on inventory. Since inventory is not easily being sold out and transform into cash in a short period, fashion retailer should not hold too much inventory. Since fashion items are easily faded 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 mastered price. The profit of the company will be affected Since Bauhaus have a lower level on inventory, its inventory turnover will much slower than I. T. It may tie up the capital 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 run across 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 financial backing 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 raise money. And the equity financing method is more safety and no regular inter est burden. v) Market Test Market test relate the current market price of share of stock to an indicator of the return that might accrue to the investor. It establish on the share markets perception 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 relationship between the current market price of the stock and its earnings per share. The higher the ratio, the higher the comprehend 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 alternatives. 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 financial statement analysis and potential risk of the company. a)I. TThe diagram shows that turnover have been increased gradually during 2007 to 2011. Although 2008-2009s local economy is in quite a little turn, the company still can strive to increase of tu rnover. It is predict that the company will probably maintain the gain since the economy situation is recover and the local residents will spend more money on clothing items. The diagram shows that I. T had undergone a decrease on profit in year 2009 due the poor economy situation. And they suffered decrease of financial income. And the operating(a) expense was higher than 2008. After 2009, there was a great overture on profit.It has six times more profit comparing during 2010and ball club 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 adapt different strategy in order to keep the cost in the low level. other risk is that I. T needs to pay attention that is the exchange issue. Since I. T sources many merchandises fro m different countries and the foreign exchange is unstable.For example, Japan YEN is much higher exchange rate. However, I. Ts buying 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 alert 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 underlie the achievement of business objectives and to determine a basis for how such determine risks to be managed and mitigated.In the coming future, I. T should pay more attention on risk management in order to prevent woeful 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 aggressively 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 approach 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 currency risk and surgery cost increment risk. The Group continuously monitors its foreign exchange position and, when necessary, will hedge foreign exchange exposure 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 always happen. The company should build up a risk management system to minimize the risk of company operation. 7)Conclusion The financial performance 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.