Financial Analysis on Retail Industry Essay

2374 Words May 13th, 2014 10 Pages
Executive Summary This analysis studied financial information of three multinational corporations in the retail industry, Ralph Lauren, American Eagle, and Gap. This examination is predominantly and analysis of Ralph Lauren and American Eagle, and it compares its financials and performance to that of Gap. In order to reach a decision on which firm my company should invest in; we recreated and cleaned both company’s financial statements followed by an analysis using key financial ratios and metrics. My company is searching for the firm that would be more profitable in the following fiscal years. After completing an in-depth analysis of these companies, we concluded that Gap would be the best investment for future growth in the …show more content…
This makes up for their lack of revenues because people buy less quantity of the luxury brands and tend to buy more of the standard products that are affordable and still have above average quality, such as Gap Inc. and American Eagle. The industry research showed that the recent drop in cotton prices will help retail companies enormously in profit margins. This will help companies such as Gap and American Eagle more than luxury brands like Ralph Lauren. This is shown in Gap’s trends in the past years for EBIT Margins; in 2009 they had 10.7% which increased to 12.8% in 2010; this is a 2.1% increase. This increased another .6% to 13.4% in 2011, this can be projected to grow even more in 2012 with more drops in the cotton prices. Gap reported that two-thirds of their increases were in the drop in cotton prices. Polo has also seen increases in EBIT margins but not in such a drastic change. From 2010 to 2011 they had a .7% increase on EBIT margin and then slowed down to a .2% growth from 2011 to 2012. This is because they were less affected by the change in cotton prices. American Eagle showed a decrease in EBIT margins in 2012 with a change of -3.4%. This loss should not be as great as reported because in 2012 they had a loss on impairment of assets which is not a recurring expense.
EBIT Margin 3 Yr Trend
Polo 14.7% 15.4% 15.6%
American Eagle 10.6% 10.7% 7.3%
Gap 10.7% 12.8% 13.4%

EBITDA margin adds

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