Company is Burberry clothing group PLC - Essay Example

An Analysis of Burberry Clothing PLC Introduction This paper shall analyze the Burberry clothing company based on its business strategy, financial performance and competitive environment. Burberry is a fashion company based in London and has been operating since 1856 when it was established in Basingstoke by Thomas Burberry (Burberry CLothing PLC). The company has over 500 shops in Europe, America, India, the Middle East, Taiwan, Singapore and China. Recently in 2011-12 year it was named by WPP/brands as the fourth fasted growing brand after apple, Amazon and Google respectively (WPP).

The company focuses on the manufacture, design, sourcing and sale of luxury accessories and apparels. Part of its growth strategy is to license third parties or franchise other entities to manufacture and distribute it produces under the Burberry trademark though the majority of its operations are through the mainline stores and departmental stores across the globe. There were about 70 franchise stores, 227 concession stores, 215 mainline stores and 55 outlets as of 31 March 2014 (managementtoday.co.uk/go/burberry/)Business ProfileThe company has employed an elaborate branding strategy, dividing its operations into three distinct brands.

This helps to develop brand loyalty which in turn would increase the revenue volumes of repeat sales. The second expansion strategy that has been employed is the use of the franchise away from the traditional company operated mainline stores which increase the cost of doing business. Franchising has enabled the company to have a wider physical presence with less capital needs for expansion and growth into new markets. The company has also ventured into the eCommerce selling its products online to capture the growing trend in eCommerce and reach out to even more wider clientele not just the individuals who can access their physical stores.

Market Positioning and competitionThe company’s products are mainly continuity products that have relatively short life cycles and fashion products that respond to the prevailing trends. This consequently reflect that the company must ensure it position itself uniquely and also be able to target its more trendy conscious customers. The main competitors include Gucci, Polo, Coach and Armani which are top luxury fashion brands globally (wpp.com). To achieve a competitive advantage the Burberry Company has ensured that its expansion into new and emerging markets has been slow and steady as well as increasing its product range to include even logo less apparels.

Financial and performance analysisThe company generated revenues of £ 2,330 million, which resulted in a net profit of £332.4 million. In terms of profitability the profit margin and operating margins were 13.84% and 19.2% respectively. The return on assets and return on equity was at 15% and 29.40% respectively. Looking at the liquidity status the current ratio was at 1.92 with cash balances of 545.5 million. The gearing ratio of debt to equity ratio was 11.84 (burberryplc.com)In terms of share valuation the price to book ratio was 534.

99 and the earnings per share (EPS) was at 0.72. According to analysts opinions the recommendations are in a HOLD position, though a few of the analyst believe the company has strong growth potential and is undervalued. The current stock price is 1,422 and the main target evaluated is 1,654.81 the highest target for this stock is 2,128 (uk.finance.yahoo.com)ConclusionThe 156 year old Burberry Clothing company seems to be performing well based on its business model being able to leverage on the changing trends in the fashion industry.

They have slowly but consistently growth through a global expansion strategy that involve use conventional stores as well as franchising, product diversification and incorporating technology through commerce to boost sales. The Financials show a strong company with no liquidity problems which means they have sufficient amounts of cash to operate and do further developments and expansion. The valuation opinions of various analysts show that the company is reasonably priced or slightly underpriced and thus recommend a hold position for those with the stock in their portfolio. 2. Financial AnalysisList of Assets and liabilitiesThe company is in the fashion business in which they design, manufacture, distribute and sale clothing, apparel and jewelry to an assorted diverse customer base.

This type of business requires a substantial amount of capital investment considering the scope of operation. The company has in its report summarized its major assets as follows1. Debtors receivable2. Derivative assets3. Cash at bank and in handIt can be noted that majority of its assets are fairly liquid due to the nature of its operations.LiabilitiesIn terms of liabilities come as a result of the supply chain logistics where the company obtains supply of materials and pays at a later date.

There are also substantial provision made for liabilities and contingent liabilities that may accrue over the course of the business period. The major liabilities outlined in the financial report are;1. Creditors2. Provision for liabilitiesNotable omissionsIn the balance sheet the company might have omitted the intangible assets that are as a result of its brand. This is because it is not highlighted in the statement of financial position of the company. In my opinion I believe that the company has a substantial brand that could be realized in the event of a sale or merger.Part 31. Market value of equity = 4,000,000 shares @1495=5,980,0002.

Book value= ==206.1253. Premium= market value – book value= £1,495- 206= £1,289Free Flow Cash flow discounting modelYearProjected FCFDiscount rated.f.factor @4%Amount070,0004%170,000177,0004%.96274,074284,7004%.92578,348393,1704%.88982,8284102,4874%.85587,6265112,7354%.82292,668 Total Amount485,544Works CitedBurberry Clothing Plc. "Annual Report." 2014. Burberry Clothing Plc Website. http://www.burberryplc.com/investor_relations/annual_reports/annual-report-2013-14. 17 October 2014.Burberry CLothing PLC.

"company website." 2014. http://www.burberryplc.com. 17 October 2014.managment today. 2012. http://www.managementtoday.co.uk/go/burberry/. 17 October 2014.WPP. 2014. http://www.wpp.com/wpp/marketing/brandz/brandz-2014/. 17 October 2014.Yahoo Finance. 17 October 2014. https://uk.finance.yahoo.com/q/ao?s=BRBY.L. 17 October 2014