Financial Analysis of Cartier Company - Assignment Example

Financial Analysis Introduction Cartier Company was established by Louis-Francois Cartier as a family owned business in 1847 to design, produce, distribute and market watches and jewelry. It is based at Paris in France and has several branches across the globe. Its ownership changed later when investors external to the family bought the company. The company targets wealth class of individuals across the globe hence the production and marketing approach is affected by the choice of its clients (Coleno 46). This report aims to provide three years’ assessment of Cartier financial statements and conclude on the company performance in relation to its competitors like Chopard. Even though there are other rivals offering similar products in the global market, Cartier’s performance has continued to grow tremendously for a long period. History Alfred, Cartier’s took over the management of the business in 1874. In 1904 the company started designing and producing watches for different companies. Cartier entered into an agreement 1907 with Edmond Jaeger as supplier of the company’s watches. By 1912 the company introduced two new brands of watches Baignoire and Tortue followed by Tank model introduced in 1917. Cartier ownership changed in 1972 when a group of investors bought the Paris business from the initial owners. Also, the same group bought Cartier London in 1972 and Cartier New York in 1976 (Coleno 69). The company engaged in mergers and changed its management with an aim of strengthening its operations. Also, the company has been involved in different exhibitions held in different parts of the world with an aim of increasing its market across the globe. Cartier has several branches in different parts of the world and deals with different brands of jewelry and watches that are marketed and distributed across the globe. Carter has over two hundred branches located in more than 125 countries across the globe and over ten thousand employees. The company has shops in Middle East, America, Japan, Asia and Europe. The company deals with different products such as watches, leather goods and accessories. The carter products are marketed to affluent individuals who have great concern for personal status in the society (Coleno 87). Some of their products are designed to bring together individual’s celebrity, drive and lifestyle in order to establish a distinguishable market section. Cartier financial statement for the year 2009, 2010, and 2011 Values from Balance sheet 2011 2010 2009 Assets Non-current assets 2659 2163 2189 Current assets 7034 5580 5235 Total assets 9693 7743 7424 Equity & liabilities Owners equity 6980 5659 4833 Non-controlling interests 12 2 3 Total equity 6992 5661 4836 Liabilities Non-current liabilities 488 477 280 Current liabilities 2213 1605 2308 Total liabilities 2701 2082 2588 Total equity and liabilities 9693 7743 7424 Income statement Sales 6892 5176 4739 Cost of sales (2498) (1985) (1758) Gross profit 4394 3191 2860 Operating income 111 24 16 Finance cost (292) (161) (75) Net profit 1079 603 365 Net operating income 1606 938 580 1. Gross margin = gross profit/ net sales for the year; 2009 = 2860/ 4739 = 0.60 2010 = 3191/5176 = 0.62 2011 = 4394/6892 = 0.64 The gross margin is impressive and depicts an increase from the year 2009 across 2011. This implies that the business profitability is increasing as a result increasing sales. It is a measure of gains the organization will attain from its trading activities (Gibson 497). Therefore, the company is using its resources efficiently to make earnings. 2. Operating margin = operating income/ net sales for the year 2009 = 580/4739 = 0.12 2010 = 938/5176 = 0.18 2011 =1606/6892 = 0.23 The three years operating margins indicates an increasing value hence an implication that Cartier company will be able to meet its financial obligations from the income it generates from trading activities (Gibson 5047). A higher value is more preferable because it is an indicator of healthy operations of the business. 3. Profit margin = net profit/net sales for the year; 2009 = 365/4739 = 0.08 2010 = 603/5176 = 0.12 2011 = 1079/6892 = 0.16 Profit margin measures the profitability of the business in terms of the income it generates from its trading activities. The higher the ratio is the better the performance because this implies that the organization is utilizing its resources well to generate some income (Gibson 507). Cartier is improving in its performance since the year 2009 all through 2011 because of increasing ratios. The managers prefer businesses that depict an increasing profit margin because the income generated from the trading operations is able to expand business operations and reduce dependence on external borrowings. 4. Return on equity = net income/average shareholders’ equity for the year; 2009 = 580/4737 = 0.12 2010 = 938/4836 = 0.19 2011 = 1606/5661 = 0.28 This ratio depicts the wealth generated by the business for the investors. Higher ratios are better because they assure the investors that their resources are safe and profitable. The Cartier’s return on equity ratios for the three years under study depicts an increasing figures hence an implication that resources of the shareholders are creating income. This is the reason why investors commit their resources in business; to gain from increasing value of their capital invested (Gibson 511). This will make the business to reduce its liabilities since the gain in capital will enable the business to finance its operations in the future without depending on external borrowings. 5. Return on assets = net income/average total assets for the year; 2009= 580/7214 = 0.08 2010 = 938/7584 = 0.12 2011 =1606 /8718 = 0.18 Return on assets ratio measure the potential of business to create its wealth from the assets committed in that business. This provides an insight to the management on how the business can reduce dependence on borrowing from the available resources. Higher ratios are better since they show that the business is generating greater income from its resources. Since businesses require finances for short-term and long-term operations, returns on assets provide the business with faster finances for its operations (Gibson 514). Cartier has increasing return on assets ratio hence this is an implication that the business is utilizing its resources from the available resources. 6. Current ratio = current assets/current liabilities for the following years; 2009; 5235/2308 = 2.27 2010; 5580/1605 = 3.48 2011 = 7034/2213 = 3.18 Current ratio is provides the business managers with an idea on how much the current assets is available in the business in relation to the short term obligations. Higher ratios are better because it implies that the business is able to clear its short term obligations using the available short term assets without causing business insolvency. However, higher values are not impressive because they may mean that there are a lot of idle resources in the business. For example, the business could be holding a lot of inventory that is not moving (Gibson 523). Should this be the case then business managers should improve the marketing strategies of the business to ensure stock is moving fast. Cartier increasing ratios and this is an impression that the business can be able to finance its activities without short term borrowings. Cartier’s performance is improving tremendously since the resources are continuing to build up from one year to another. 7. Debt ratio = total liabilities/total assets 2009 = 2588/7424 = 0.35 2010 = 2082/7743 = 0.27 2011 = 2701/9693 = 0.28 Debt ratio measure the potential of the organization to settle all its liabilities from the available resources. This ratio determines the proportion of the amount of borrowed finances in relation to what the business owns. Therefore, higher ratios are not health for the business because it is implies that should the lenders to the business decide to withdraw all their finances from the business at once then the business may have to close down its operations (Gibson 527). However, low values are not favorable because they may imply that managers are incompetent hence unable to explore all available means to raise finances for the business. A business with proper financing will be able to expand its operations and generate more wealth for the shareholders. Chopard Company Cartier competes with other organizations dealing with similar products in the same industry. An example, Chopard which is Swiss-based Company that deals with luxury watches, jewels and accessories (Chopard 189). This company was established in 1860 by Louis-Ulysse Chopard that began by making pocket watches and chronometers. They manufacture their products using in-door movements and their main target clients are ladies. Also, the company partners with Mille Miglia to manufacture watches with high end racing hence became the certified sponsor of the Cannes film festival in 1988. Unlike Cartier organization which deals with a wide variety of products, Chopard mainly deals with watches and jewelry. The company has around two thousand employees who operate in the companies shops (Chopard174). It has 120 jewel outlets in the United Kingdom and around fifteen hundred outlets across the globe. The ownership of the business has not been changed hence it is still under family ownership. The annual revenue of Chopard is about $870 million. The business is continuing to expand its operations. However, Chopard is smaller than Cartier both in terms of assets base, the number of workers, annual revenue and numbers of shops. Furthermore, Chopard products lines are not as many as those of Cartier (Chopard 171). However, both organizations produce and market their products to wealth group of people across the world. As a family business, Chopard capital is much less compared to Cartier. The revenue generated by the business is private and not for external shareholders. Conclusion Cartier jeweler deals with variety of products such as watches, accessories and jewels. The company started as a family business but later extended its ownership to external parties. However, this company is stable in terms of capital base and marketing strategies. The performance Cartier has continued to grow over time resulting to stable financial base of the company. With established shops across the globe, Cartier designs, manufacture, distribute and market its products in different parts of the globe. It has other competitors such as Chopard even though Cartier remains the best in terms of output. Due to its progressive performance, Cartier is an appropriate business to venture into. Work Cited Chopard: The Passion for Excellence 1860-2010. TeNeues Publishing Company (2010). 164- 198. Coleno, Nadine. Amazing Cartier: Jewelry Design since 1937. (Random House Incorporated. 2009). 31-137 Gibson, Charles. Financial Reporting and Analysis. Cengage Learning, (2012). 482-536 Read More