About the paper
The paper is commissioned to compare the cash flow statement for two UK companies, Burberry Group and Hugo Boss. As part of the analysis, we will be conducting a common-size analysis of the cash flow statement of each company for the year. Additionally, two cash-flow based ratios will also be used to analyze the trends in the cash flow of both the companies.
Common-Size Analysis
i) Cash Flow from Operations
As noted from the common-size cash flow statement of both the companies (included in the appendix section), over the year, Burberry Group witnessed a constant net cash flow from operations amounting to £425 million. It is considerable that while the company did manage to earn higher cash flow from operations that surged from £523 million to £535.5 million, it was the high proportion of tax amount this year that eliminated the effect of higher operating profit and the company eventually settled at constant net operating cash flow.
On the other hand, the year 2014 was not much appreciable for Hugo Boss as the company settled for lower net operating cash flow amounting to £395 million relative to £416.33 million for the previous year, a decrease of 5.05%.
ii) Cash Flow from Investing Activities
Another notable transaction in the cash flow statement of the companies was the significant decline in the capital expenditure amount. As for the Burberry Group, during the year, the company made a total capital expenditure worth £153 million relative to £321 million for the previous year, a decline of 52.02%.
Similar was the trend in the capital expenditure amount of Hugo Boss, which during 2014, made a total investment worth £127 million relative to £186 million for 2013.
iii) Cash Flow from Financing Activities
During 2014, both the companies opted for lower cash flow from financing activities relative to the previous year. As for Burberry Group, during 2014, the company raised a total cash flow worth £151.8 million relative to £159.8 million raised during 2013. On the other hand, Hugo Boss also indicated a similar trend with the amount raised from financing activities declining from £363.08 million to £261.53 million, a decrease of 27.82%.
Cash Flow Ratios
As disclosed briefly in the introductory section of the paper, this section caters to the cash-flow ratios that will be used to compare the cash flow performances of the two companies selected.
i) Operating Cash Flow Ratios: CFO/ Current Liabilities
In order to access the liquidity of the companies, we initiated our analysis using an operating cash flow ratio. This ratio guides the analyst about the ability of the entity to pay off their current liabilities using cash flow generated from operations. As a standard rule, ratio multiple less than 1% is cited as alarming situation, indicating that the company is not able to earn enough cash from operations to pay off its short-term liabilities.
Burberry Group
2013: 425/563.5= 0.75
2014: 425/631.7=0.67
Hugo Boss
2013: 424.36/495.10= 0.85
2014: 395.42/545.96= 0.72
Referring to the above calculations, we witness that both the companies have ratio multiple below 1. As for Burberry Group, while the companies managed to maintain a constant operating cash flow over the year, it was the increase in the current liabilities that pushed the ratio multiple down from 0.75 to 0.67.
On the other hand, the rival company, Hugo Boss, also witnessed a declining trend amid decreased operating cash flow and increased current liabilities that eventually resulted in a decline in the ratio multiple from 0.85 to 0.72
ii) Cash Flow Margin Ratio: Operating Cash Flow / Net Sales
Another cash based ratio that indicates how much cash margin is being earned by the entity from total revenue and if it is earning a sustainable cash amount from revenue figures.
Burberry Group
2013: 425/1998.7= 21.26%
2014: 425/2329.8= 18.24%
Hugo Boss
2013: 424.36/2432.13= 17.44%
2014: 398.25/2571.61= 15.48%
Referring to the above figures we witness that during 2004, both the companies witnessed a decline in the cash flow margin. As for Burberry Group, the cash flow margin of the company plummeted from 21.26% to 18.24%, amid constant net operating cash flow and increase in revenue figures. On the other hand, Hugo Boss also witnessed a declining cash flow margin amid declining operating cash flow of the company while the sales figures surged marginally yet pulling down the cash flow margin from 17.44% to 15.48%.
Bibliography
Operating Cash Flow Margin . (2016). Retrieved January 1, 2016, from Investopedia: http://www.investopedia.com/terms/o/operating-cash-flow-margin.asp
Burberry Group. (2014). Annual Report 2014. Burberry Group.
Hugo Boss. (2014). Annual Report 2014. Hugo Boss.
Peavler, R. (2014, December 15). Cash Flow Ratios . Retrieved January 1, 2016, from http://bizfinance.about.com/od/cashflowanalysis/tp/cash-flow-ratios.htm
Peavler, R. (2014, November 25). What is the cash flow margin? Retrieved January 1, 2016, from http://bizfinance.about.com/od/financialratios/f/Cash_Flow_Margin.htm
Appendix:
Burberry Group:
Hugo Boss:
