Introduction to Accounting: Debenhams and H&M
Introduction
Inevitably, the circle of an organization is extremely broad in which there are certain things talks about. Organization is known as a place, wherein people belong to different demographic work together for the achievement of a single and pre-specified goal in total. When it comes to corporations, then there are certain decisions which have to be undertaking for the achievement of the goal effectively.
Organizations have a traditional approach to tackle with different things and issues in total and with the help of traditional approaches, organizations would certainly increase their financial belongings in total (BRIGHAM, 2013, pp. 172-182). It is extremely important for the companies to stay in a certain jurisdiction to being effective and competitive from different aspects. Financial competitiveness of an organization is extremely important from different viewpoints, because it is something which is a sort of attractiveness for an entity in total. The financial statement of an organization would be used and analyzed by the investors or shareholders from different angles, and every angle would be effective in total. Among number of tools, financial analysis tool is one of them, which has its own recognition and importance in a broad nutshell. Among number of tools, the name of financial analysis tool is one of them, which has its own importance and recognition and total (PANDEY, 2009, pp. 211-225). The main perspective of this assignment is to compare the financial based competitiveness of two organizations lies in the same line of business. The names of the companies are Debenhams and H&M. In the next section, a small description about the companies would be defined followed by the analytical framework.
Debenhams Plc is basically a multinational retail chain which is operating under a departmental store format in the United Kingdom (UK). Apart from the UK, the store has its active recognition in Ireland and Denmark as well. Debenhams is an old company as its history was from the 18th century. It was a single store in London in the 18th century and it is now grown to a level of 172 locations across the UK, Denmark and Ireland. The shares of the company is actively trading on the London Stock Exchange (LSE) and it is a constitute of the Financial Times Stock Exchange (FTSE) 250 Index. William Clark is known as the founder of the company and the current Chief Executive Officer (CEO) of the company is Michael Sharp. The company earned revenue and net income of £2,229.8 million and £125.3 million in the year 2012 with around 29,000 employees (Financial highlights of Debenhams, 2012).
Hennes & Mauritz (H&M) is basically a Swedish multinational retail clothing company, known perfect for its fast growing fashion clothing for men and women, children and teenagers. The company has its active operations and recognition in around 43 countries of the world with around 94,000 employees in total. H&M is known as the 2nd largest global clothing retailer. H&M earned net revenue of SEK 126.97 billion in the year 2011 with net income recognition of SEK 18.68 billion in the same year (Financial highlights of H&M, 2012).
Profitability Analysis
Profitability is an important from the viewpoint of a company and no organization can increase its financial belongings without effective and perfect profitability analysis. There are two broad ratios, which have been covered in this particular section, which predominantly are Net Profit Margin (NPM) and Gross Profit Margin (GPM).
Net Profit Margin
Net profit margin is a major proportion of profitability. From a company's point of view is very important, whereas the better exploitation of net profit margin is also vital phases for any company in total. If the NPM of a company is 20%, then it means that the company is able to generate 20₤ from the net sales of 100₤.
Gross Profit Margin (GPM)
Similarly, the gross profit margin (GPM) is also practiced to analyze a financial stability of an entity company as a whole, which is another significant financial ratio. Mentioned below is the computation of GPM of the selected companies.
Efficiency Ratio Analysis
Efficiency based analysis would be extremely effective for an organization in total. Efficiency based analysis could be quite effective in total. The activity ratio is another foremost and widely taken ratio usually referred as efficiency ratio whose major function is to analyze the efficiency of an organization (DAVES, 2012, pp. 319-330). There is an important ratio which would be taken into account for this thing, which is Return on Assets (ROA).
Return on Assets (ROA)
The analysis of how effectively the company's operating assets as the ratio of net income generated is called Return on assets (ROA). It is also widely exercising ratio from an investor's perspective. The computed figure of ROA of the companies is mentioned below in the table with graphical representation.
It is found that H&M is comparatively effective as compared to the other organization which is Debenhams in terms of value and utilizing its operational assets. The average Return on Assets (ROA) proportion of H&M is 29.29% while it is 5.47% for Debenhams. It means that H&M is highly effective as compared to Debenhams as far as utilizing its operational assets is concerned, which would be equally beneficial for the company to generating net revenue and net income effectively in total.
Working Capital Analysis
An analysis, which is used to assess the difference among the total assets and liabilities of a company, is known as Working Capital Analysis (WCA). It is one of the most widely used measures to assess the ability of an organization to generate net income in total. WCA is used to value the day to day operations of a company (WILLIAM & Crawford, 2004, pp. 87-91).
It could be clearly seen that the working capital of Debenhams is in negative term while it is positive and extremely high when it comes to working capital of H&M in total. It is also found from the analysis that the average WCA of Debenhams is -644.33 while it is 3,903 for H&M in total, which is extremely high as far as an organization is concerned. Hence, H&M found comparatively stronger than Debenhams in this particular stance as well.
Liquidity Analysis
In finance, the name of liquidity lies with the fact that how liquid is an asset of a company. There is an important ratio that comes under the umbrella of Liquidity ratio which is Current Ratio and it is used in this analysis as well (LASHER, 2010, pp. 155-161). In the financial sector, liquidity is meant to anything in return and able to transform into cash without encountering any difficulty.
The ratio which is being utilized is current ratio.
Current Ratio
The current ratio is a branch of liquidity ratio or can be termed as working capital ratio, shows a company's current assets to current liabilities ratio. The current ratio is one of the most frequent and vastly applied ratios that come under the sphere of liquidity ratio. The computed result of the current ratio of the company is mentioned below,
The current ratio of H&M is comparatively higher than that of Debenhams in almost every angle. The current ratio of Debenhams is lower than the psychological level of 1. The average CR of Debenhams is 0:55, showing that the company is not able to fulfill its financial promises and obligations, while it is quite higher for H&M in total. The average CR of H&M is 2:97, showing the capability of the company in terms of meeting with the short term financial promises in total.
Investment Ratio
Investment Ratio is the ratio which analyzes about the stance of parking the money in the stocks of the companies in total. Earnings per Share (EPS) would be used in this particular scenario (BLOKDIJK, 2008, pp. 77-87). The EPS figures of both of the companies are mentioned below,
The EPS of Debenhams lies in the range from 0.97 to 1.15, while it lies from 1.98 to 3.98 for H&M which is quite high and productive.
Solvency Ratio
Solvency Ratio analyzes the long term debt stance of a company in total. The ratio which has been used for the same analysis is Debt to Equity Ratio.
Debt to Equity
Debt to equity ratio is another financial ratio indicates the relative proportion of corporate equity and the balance of funding for entities. This ratio is often expressed as financial leverage. Debt to equity is a core ratio comes under financial modeling and is used as a benchmark to determine the financial position as a company
Conclusion
Organizations always work hard for their economic based prosperity and it is important to undertake effective and timely decisions to accomplish the same. An organization is basically referred to a place wherein people belong to different mindset and departments work together merely for the achievement of a single and pre-specified goal in total. The main perspective of this assignment is to compare the financial based competitiveness of two organizations lies in the same line of business. The names of the companies are Debenhams and H&M. From the entire analysis, it is found that H&M is comparatively strong in terms of financials as compared to Debenhams as all of the financial indicators are in the favor of this company.
References List
BLOKDIJK, Gerard. 2008. Financial Management Theory and Practice: Fundamentals of Managing IT Services with IT Service Financial Management Best Practices, A Practitioner's Guide. Perth: Lulu.com.
BRIGHAM, Eugene F. 2013. Financial Management: Theory & Practice. New York: Cengage Learning.
DAVES, Phillip R. 2012. Intermediate Financial Management, 11th ed. Chicago: Cengage Learning.
LASHER, William. 2010. Practical Financial Management. London: Cengage Learning.
PANDEY, I.M. 2009. Financial Management. Pune: Vikas Publishing House Pvt Limited.
WILLIAM W. SIHLER, Richard Crawford. 2004. Smart Financial Management: The Essential Reference for the Successful Small Business. Houston: AMACOM Div American Mgmt Assn.
Financial highlights of Debenhams, 2012, retrieved from [online], < http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=DEB:LN&dataset=balanceSheet&period=A¤cy=US%20Dollar>, accessed on 2013-Nov-26th
Financial highlights of H&M, 2012, retrieved from [online], < http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=HMB:SS&dataset=balanceSheet&period=A¤cy=US%20Dollar>, accessed on 2013-Nov-26th
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