Financial Report Of Capri Holdings Limited Harvard Case Solution & Analysis

Financial Report Of Capri Holdings Limited Case Study Analysis

Liquidity Ratios

The foremost measure of liquidity is to check if the firm has enough current assets available for the current liabilities. The Current ratio of the Capri Holdings is 1.12 in 2019, which has  decreased from 1.6 in 2018. Although, LBrands has more positive liquidity ratios. This is indicating that the company is facing liquidity issues and is unable to meet its working capital requirements and to repay its short-term creditors through its current assets. One of the major reasons could be that its collection period, which is very weak. Capri Holdings takes 46.93 days to collect its cash back from its customers.

The Second matrix used to analyze the liquidity is the Quick ratio thatsubtracts the inventories from the current assets as their conversion in cash depends on the market conditions.In the instant case, the quick ratio of 0.50 shows that the company is in a liquidity crunch. The quick ratio has also decreased in 2019 as compared to 2018 (0.76). Another point which is notable  is the difference between Current and Quick ratio being minimum, which is because the company has a low inventory figure. The inventory turnover ratio is 1.28 in 2019, resulting in lower inventories on the Balance Sheet. The cash ratio of 11% in 2019 is much less than its LBrands cash ratio of 71%. The company’s cash ratio is very low (0.11), which means that the company does not have enough cash available to pay backits current obligations.

Recommendations

At the end,by taking the above analysis of the Capri Holdings with its major competitors named LBrands, Kering, Fast Retailing Co Ltd, Ralph Lauren and SMCP under consideration, and after analyzingthe financial statements of the Capri Holdings Ltd;I am of the opinion that:

  • Capri Holdings should focus on its liquidity issues, because its major competitor LBrands has efficient liquidity.
  • One of the major reason of liquidity issue is collection period. However, Capri Holdings Ltd should revise its terms and conditions of receivables, by providing certain discounts, term credits to its customers, which will also enhance the company’s sales and brand recognition.
  • Another issue is its unsold inventory; So Capri Holdings Ltd can introduce Just in Time (JIT) strategy in its business, which will reduce its storage cost.

Conclusion

Capri Holdings Ltd is the well-known fashion company in the world’s fashion luxury group, and is considered as a market leader in the areas of design, style and craftsmanship. LBrands, Fast Retailing Co Ltd, Ralph Lauren and Fering are the major competitors who also happen to operate in the same industry, i.e. fashion industry. After comparing the financial statements of Capri Holdings Ltd with its major competitors; we conclude that net profit margin and return on equity is much better than its competitors’ because Capri Holdings Ltd is a well-recognized brand. As the company has invested more on its fixed assets, it is serving as a positive sign of an increase in the company’searnings per share, which would be because of the company’s because asset utilization and sales generation in future................................

 

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