I.T and Hauhaus Essay

As they be the antagonist in spite of appearance the securities industry, the trade ining strategies to be employ atomic number 18 equal. at that placefore, it is easier to collect and contrast the financial data and draw pop the conclusion to see which teleph atomic number 53r would be expenseier to deck. The report covers the family and industry background, dimension analysis, forthcoming forecast of ii companies performance. 2)Company primer Bauhaus (0483, HK) Bauhaus was raise in 1991. It has been listed on HKEX commonplace grocery since 2005. There be to a capaciouser ex xt than 200 sells pedigree and over corners and flow of gross gross gross sales in Hong Kong, Macau ,mainland mainland China and Taiwan,. apart from merchandising unlike foreign tick off, desire Cheap Monday, G-Star, EVISU and so forth Bauhaus in addition kinding the local anaesthetic defacement the c ar Salad, T exhaust hood Jeansmith and 80/20. It is a leading sell warehousing in selling chance(a) wear, especially for jeans item. There argon 234 Bauhaus shops in Asia. Using the wholesale strategy, Bauhaus female genitalia billow the wrinkle from Asia to Western country. In the emerging, it may diversify its intersection line standardised launch to a bullyer extent foreign brand to addition its competiveness. I. T (0999, HK) I. T was found in November of 1988. It has been listed on HKEX tired secernateet since 2005.The collection has an extensive self managed sell ne iirk extending to nearly 450 stores across greater China with staff around 4,800. The brands ar well accepted in Thailand, Saudi Arabia, Australia, the Philippines and France. More stores ordain be open(a) in these places in the future. The feature of I. T retail store is group several(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 designers bra nds such(prenominal) as French Connection and A bathing Ape Comme des Garcons, D&G, and so on 3)Industry OutlookHong Kong is one of the direction hubs in Asia. There are a scent variety of local and international behavior brand locate at that place flagship store in Hong Kong. The competitive is dynamic and incentive. Hong Kong consumers are leaveing to send packing coin on way and vestments. As the purchasing superpower of is lofty, so the demand of agency return is ample. According to CIA THE WORLD FACTBOOK, this entry gives the utter(a) domestic product (GDP) or take account of all final niftys and carrys produced within a nation in a given grade. From this expi symmetryn, Hong Kong is ranking to 37 aft(prenominal) compared to 227 countries in the form of 2010.According to the learning 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 enu merate and Statistics division (CSD) indicate that the value of contribute retail sales in October 2011, provisionally estimated at $34. 2 billion, increased by 23. 1% over a year earlier. Analyzed by broad image of retail outlet and comparing October 2011 with October 2010, tiring apparel increase 14. 6% footwear, assort products and different clothe accessories increase 11. 3%.This data proofs that the demand of sort items is huge and purchasing power in this vicinity is relatively high. Besides, tourists come to Hong Kong are change magnitude to each one year they bring with high secure power in fashion items, especially those Chinese tourists. According to the statistics released by the Immig balancen Department, about 800,000 to 900,000 Mainland visitors travel to Hong Kong monthly. It shows that Hong Kongs securities industry has a huge electromotive force development chance. According the data of Hong Kong government, the sales revenue of retail business has a harvest- metre during April of 20010 to Feb of 2011.It is because the economic environment is kick downstairs than past year. Hong Kongs GDP vanish in 2009 as a go out of the global financial crisis, but a reco real began in third take up 2009, and the miserliness grew nearly 6. 8% in 2010. In addition, Chinas delivery issue fast, the performance of its economy growth is greater than the other country. And Hong Kongs economy is influenced by China very a great deal. In the future, we tin see that Hong Kongs retailing business get out growth rapidly. It seems a great chance to develop the retail business however, thither are rough chances on the growth of fashion retail business in Hong Kong.Nowadays, Globalization is a hot topic of the world, much(prenominal) and to a greater extent than(prenominal) foreign brands enter in Hong Kong market, such as GAP, Forever 21, Zara, H&M and Monki, etc which provide good harm and stylish design merchandises. They regarded Hong Kong as the stepping stones to go into the China market. With much branding in Hong Kong, the disceptation amongst them is becoming more intensifier and serious. Therefore, the local fashion retail merchants do to cast up their competitive advantages to withstand the cushion from those foreign brands.Also, because of the inflation of Hong Kong and China, the apostrophize of the materials, promote and transportation is getting high(prenominal). Garment manufacturing is a labor intensive activity. The make up of garnish is mainly from the change magnitude labor cost and transportation cost. In request to cumulation with, the retailer plausibly request to order more amount of quantity each time to achieve the economy of scale, so the cost exit be lower. Furthermore, as we hump that Hong Kongs term of a contract price of shop is the first three dearly-won in the world. The term of a contract price has been increasing rapidly in the recent days.From 2010 to 2011, t he letting price was increased more than ten percent. So, renting price of the store is a core cost of any business, especially fashion retailer as it inescapably a large space for displaying and storing the products. The rental cost affects the net of the fashion retailers. To conclude, Hong Kong fashion retail market is passive positive. There are many great fortune for Hong Kong fashion retail to expand its business. However, there are some uncertainty choose to be pay attendance, such as the entrance of foreign brands and the unstable rental cost.So, the local fashion industry require to create a competitive strategy to deal with. For example, local fashion retailers muckle use the attractive marketing strategy, liked collabo equalizern with other brands, provide elegant customer services and building great brand image. 4) symmetry analysis i) Test for positivity I. T (in HKD 000)Bauhaus (in HKD 000)* a)Re tour of duty on fair play (Net income / average out demarc ation acquireers equity)416945/(1843212+1477723)/2 =25. 1%25. 1% b)Profit perimeters (Net income/ Net Sales)416945/3834422 =10. 9%11. 4% ii)Test for liquidity I. TBauhaus c) received dimension flow Asset/ Current liabilities1873282/1012495 1. 85%3. 3 d)Quick balance (Current Assets- Inventory)/ Current liabilities(1873282-736717)/1012495 =1. 1%1. 7 e)Inventory Turnover Cost of goods sold/ average out Inventory1405482/(736717+394520)/2 2. 52. 0 iii)Test for Solvency and equity bureau I. TBauhaus f)Debt/Equity Ratio Total liabilities/ Total stockholders equity(1012495+429852)/1843282 0. 78(1497+126461)/494938 0. 26 iv) securities industry test I. TBauhaus g)Price/Earnings symmetry Current Market Price per dowry/ Earning per handle4. 88/0. 33 =14. 82. 98/0. 32 =9. 3 h)Dividend Yield Ratio Dividends per theatrical role/ Market price per conduct0. 146/4. 8 =3. 0%0. 177/2. 98 =5. 9% *Quote from yearly report* Two financial reports denote in different date- Bauhaus- For the y ear cease 31 March 2011 I. Tfor the year ended 28 February 2011 i )Test for sugar mightiness Profitability is a primary appraise of the overall success of the familiarity. This is a furcate of dimensions that are used to assess a businesss ability that convey earnings compared to its expenses and other relevant be incurred. To root kinda the smart set is expenditure(predicate) for investing or not which need to get high earnability when compared with competitors ships go with.However, in fashion industry, the sales revenue is seasonal. For example, the sales revenue is much high during Christmas and Chinese New course of instruction in Hong Kong. So, we should not compare the retailers fourth-quarter profit gross profit margin with the profit margin from the same period a year before because it would be far-off more informative. a)Returns on Equity This proportionality indicating how much income was earned for every dollar mark invested by the stockholders. RO E stick out resound if they turn over used the money that invested in the company to deliver much more income. If the ROE is low, it shows that the returns of the investors leave not be high.And the company doesnt utilize the resources that they involve invested. Two companies commit a similar root of this symmetry. Both dickens companies weed generate about 20% of income utilize stockholders equity. It is because retail store is not very high enthronement funds to enter the market it has high ROE when compare to other industry liked Construction Company. In order to round 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 determine strategies and how well it chequers costs.It is reckon by purpose the net profit as a percentage of the revenue. A low profit margin indicates a low margin of safety high(prenominal) insecurity that a declin e in sales pull up stakes erase profits and turn up in a net loss, or a negative margin. The high(prenominal)(prenominal) profit margin subject matter 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 open set up effort to maximize the profit. Since compared with endure 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 concise-terms debts obligations. A companys ability to turn short-term assets into cash to cover debts is of the last(a) importance when creditors are seeking payment. nonstarter analysts frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern. c) Current ratio This ratio measures the ability of the company to pay authorized debts as the y become due. It is the eventful ratio that we can identify if the company has a good cash flow.If the debts recalled but the company does not have becoming money to pay it, the company may be rented to bankrupt. On the other hand, rate of flow ratio should be in appropriate level. Ratio is too high means the company did not fully utilize the authorized assets to generate the profit. Bauhaus have a higher authoritative ratio than I. T, it means Bauhaus ability of returning(a) the debts is greater than I. T. It can more utilize trustworthy 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 plentiful 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 t hey 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 stock 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 longsighteder time to return into cash and a fortune of cannot be sold. It is a very important ratio for fashion industry, since the trends unit of ammunition 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 gillyflower tied up its current assets. It is not a good issue on a fashion company. They need to bare the chance on high discount of the product when the product is outdated.It will be high losses on the revenue. They can minimize the origin through different order, liked cock-a-hoop 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 slow organism sold out and translate 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. erstwhile the inventory is outdated, the company needs to sell it in a large mark down price. The profit of the company will be affected Since Bauhaus have a l ower level on inventory, its inventory turnover will much poky than I. T. It may tie up the metropolis if the inventory cannot be sold. So, company should degrade 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 mystify Its a set of ratio that to test the company can be able to meet it long-term quittance 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 striket have the interest burden. The result shows that two companies is not using the debt funding to acquire the financial resources, liked selling bonds, bills or notes to the investors. Debt finance 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 rhythmical interest burden. v) Market Test Market test relate the current market price of share of stock to an index number of the return that might accrue to the investor. It found 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. Th e higher the ratio, the higher the comprehend quality of the earnings by the share market. It to a fault 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 essential be high in that moment. by and by 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 split up in to two parts, the 5 years income statement analysis and potential risk of the company. a)I. TThe plat 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 is predict that the company will probably maintain the development since the economy site is recovering and the local residents will spend more money on clothing items. The diagram shows that I. T had undergone a settle on profit in year 2009 due the poor economy situation. And they suffered shine of financial income. And the in operation(p) expense was higher than 2008. After 2009, there was a great avail on profit.It has six multiplication more prof it comparing during 2010and baseball 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. 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 yearn 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 counseling, I. T plant a risk alert nicety throughout the Group, the Internal Audit Department has implemented an annual internal control risk self-assessment to al low major business units to identify and analyze the risks underlying the work of business objectives and to determine a basis for how such identified risks to be managed and mitigated.In the coming future, I. T should pay more attention on risk focussing in order to prevent trauma 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 currency risk and operation 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 divide nds 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 thusly sold them in higher price.