Orotongroup Limited And Kathmandu Limited â€Myassignmenthelp.Com

Question: Explain Orotongroup Limited And Kathmandu Limited? Answer: Introduction OrotonGroup Limited The company is engaged in the business of designing, producing, marketing and distributing apparel and accessories to men and women in Australia, New Zealand and Asia. The company sells majority of its products under the brand name Oroton which include bags, wallets, ties, leather accessories, shoes, lingerie and mens undergarments. The company also sells fashion apparel through another brand called GAP. It has 63 Oroton and 7 GAP stores (Bloomberg, Company Overview of OrotonGroup Limited) Kathmandu Limited Kathmandu Limited is a competitor of Oroton in the clothing sector. This company is based in New Zealand and designs, markets and sells clothing and travel equipment in New Zealand, UK and Australia. The company sells its products through 114 stores in Australia and 47 stores in New Zealand (Bloomberg) Ratio Analysis Ratio analysis is a tool to measure the financial and operating performance of a company. The various aspects measured include profitability, liquidity, efficiency and solvency. A ratio analysis for three financial years including 2014, 2015 and 2016 has been performed for Oroton and the same has been compared with Kathmandu Limited to ascertain the companys operating and financial performance. Oroton Limited Kathmandu Limited Year 2014 2015 2016 2014 2015 2016 Net profit margin 6.6% 2% 2.5% 10.7% 5.0% 7.9% Asset turnover 2.03 1.88 2.04 1.00 0.98 1.01 Current ratio 2.09 2.86 3.02 2.64 2.90 1.79 Quick ratio 0.75 0.95 0.72 0.25 0.42 0.2 Cash conversion cycle 118.8 days 185.9 days 159.4 days 176.6 days 169.1 days 113.2 days Debt ratio 0.00 0.10 0.00 0.15 0.16 0.11 Trend Analysis The profit margin has reduced over the years for Oroton. A company works for earing profits and if the profits are falling, it is a matter of concern. The profits decreased in 2015 due to weakening of Australian dollar leading to high purchase costs; also a onetime of expense of $1021 million (OrotonGroup, OrotonGroup Annual Report 2015, 2015) was incurred in closing the Hong Kong store. The company opened three low margins GAP stores further leading to decline in profits. The margin has slightly increased in 2016 due to increase in retail prices and supply chain efficiencies. Also there was a growth in online sales. The asset turnover ratio has remained the same from 2014 to 2016 with a fall in 2015. This is because the net sales increased slightly, however the average assets saw a sharp increase owing to increase in inventory. In 2016, the inventory level fell down, also the revenue increased by 3.3% (OrotonGroup, 2016) A turnover of 2 shows that the company is able to generate 2 dollar revenue for every dollar invested. Current ratio for the company has increased over the years which mean the liquidity has increased. The current liabilities have decreased more than an increase in current assets. The current assets were the highest in 2015 due to higher inventory but the same has reduced in 2016 with a higher reduction in trade payables. A current ratio of 3 means the company has 3 times the current assets to pay for its short term obligations. The quick ratio for the company is below 1 in all the three years. Quick assets are most liquid assets. This means inventory comprises of most of the current assets and hence the immediate liquidity is low. The cash conversion cycle has increased from 2014 to 2016. The cash conversion cycle is the time taken to convert the inventory into cash. Over the years the days inventory and days sales outstanding have decreased but there has also been a decrease in the days payables outstanding leading to an increase in the cash conversion cycle. In 2016 it takes the company 159 days to convert inventory into cash as compared to 118 days in 2014. The cycle was very high in 2015 owing to large inventory and also larger receivables. The company has 0 debt ratio in 2014 and 2016. It had a debt of $8000 million in 2015 which it repaid in 2016. This makes the company debt free. The company uses its cash and cash equivalents to finance its capital expenditures. Competitor Analysis All the above ratios were calculated for Orotons competitor Kathmandu Limited to see how the company is performing against its peers in the industry. Oroton has lower profit margins as compared to Kathmandu limited. However, the trend of profit margins remains the same for both the companies owing to weakening of Australian dollar. Oroton has a better asset turnover ratio and almost double of Kathmandu. This means Oroton is more efficient in using its assets to generate sales. Even the current ratio of Oroton is better. There is a huge gap in the current ratio in 2016 as the ratio is below 2 for Kathmandu. This is because the current assets have decreased in the form of inventory and liabilities have increased. Even the quick ratio is higher for Oroton as Kathmandu has huge level of inventory. Kathmandu has a lower cash conversion cycle due to lower days sales outstanding. The days inventory outstanding is also decreasing due to lower inventory levels. The company has implemented a d emand planning software which has reduced the inventory levels (Limited, 2016). The company also has increase in days payables outstanding. The debt ratio of Orton is lower as it has no debt in two years. But Kathmandu also has lower debt ratio in the range of 11% to 15%. Recommendations We see that Oroton has much lower margins as compared to Kathmandu and the margins have reduced over the years. The company should focus on improving margins by reducing costs and increasing its revenue further from online sales. The company also has higher cash conversion cycle which can be improved by reducing the days sales outstanding. Its competitor Kathmandu has very low days sales outstanding, hence Oroton should improve its receivables collection. Also it should increase its payables outstanding as done by its competitor to increase the cycle. This is possible by maintaining good supplier relations. The comparison to Kathmandu Limited may not be perfectly accurate as both companies may use different accounting policies which can result in different results of ratios. References Bloomberg. (n.d.). Company Overview of Kathmandu Holdings Limited. Retrieved August 28, 2017, from https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=26813745 Bloomberg. (n.d.). Company Overview of OrotonGroup Limited. Retrieved August 28, 2017, from https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=4492775 Limited, K. (2016). 2016 Annual Report Kathmandu. Australia. OrotonGroup. (2015). OrotonGroup Annual Report 2015. Australia. OrotonGroup. (2016). OrotonGroup Annual Report 2016. Australia.