Question 1: Examine the following ratios below, and conduct a three-year ratio analysis. Start think about the general trend of the ratios in each category for the 3-year period.Profitability Ratios
Liquidity and Solvency Ratios
Question 2: Interpret the ratios in each category and try to link them together to provide a coherent summarized viewpoint of the company financial situation. Be creative and analytical.
Let’s first look at the profitability ratios of the company. The company always has a very healthy Gross profit margin so the manufacturing/outsourcing capability of the company was always its stronghold. However the massive drop of margin from Gross Margin to Operating margin shows that the company has a huge cost which goes out as salary and administrative overhead. The SG&A cost is more than 20% of revenue each year. The net profit margin was certainly very low in 2010 but the good news is company is seeing some continuous improvement in its net profit margin. The company seems to be a on a right path in terms of production and operation of its assets as it is on a continuous growth path.
Company’s liquidity and solvency ratios are really good and much better than some of the industry leaders in the segment. Current ratio of more than one says the current assets are more than enough to take care of current liabilities. It is a very good indication of company’s stable short term cash position. Quick ratio is also at a good rate of 60-80% of total liability. However it also shows in recent times most of the current assets are in the form of Inventory holding. This means the company is holding /keeping more inventories. Debt/equity ratio is has come down to 0.71 in 2012. It means the company is at a very healthy financial state and can leverage its position if need be by taking a loan (which should be easy to get given the good debt/equity ratio) to invest in new ventures/projects.
Inventory turnover is around 7 all the time which is much higher than the apparel retail industry in which express operates. The industry average is around 3.5 to 4.0.
Over all by looking at the figures it can be easily said Express Inc. is a company which has a very sound financial health and is growing so it should be a safe candidate for investment.
Question 3: Why Express Inc. is a good investment?
The company is very well established in US and has over 30 years of experience in specialty apparel industry. More than 98% of its revenue is generated from US only. Express Inc. in recent years has started to look beyond US and opened few stores in Canada also the company operates few more stores in Latin America and Middle East. The plan is to expand more internationally and also open two flagship stores in New York and San Francisco. The company is already growing at an annual rate of 8-9% and with the current brand building through opening stores and international expansion with boost as well as consolidate companies revenue growth.
The company’s has a very good liquidity situation as well as solvability ratios which makes it a very good company for bankers to offer loan. The company can use the leveragability from the market for expansion and marketing /branding campaigns if required.
After looking at the overall business outlook which seems to be good as US economy is slowly crawling back to normal and the company is expanding its wings. Also the European recession is not affecting the company as it does not have any presence in Europe. It is expanding into Asia and Latin America where there is huge potential growth. The company also has inner strength to sustain any downturn if it faces one and also the financial strength to invest into new opportunities which will also help growth.
The company stocks are also doing very well in recent time and almost doubled in last one year in NYSE. The company stocks are very good investment option for short and medium term.
- Women’s apparel store , http://retailowner.com/Benchmarks/ApparelAccessoriesStores/WomensApparelStores.aspx (17th April, 2013)
- Express Inc., Businessweek, http://investing.businessweek.com/research/stocks/news/news.asp?sourceFilter=BW&filterTerm=Keyword%28s%29&sortBy=dsc ( 17th April, 2013)
- Yahoo Finance, Express Inc., http://biz.yahoo.com/e/120323/expr10-k.html ( 17th April, 2013)
- Express Inc. , Morning Star , http://financials.morningstar.com/ratios/r.html?t=EXPR®ion=USA&culture=en-us ( 17th April, 2013)
- Express Inc. , Annual Reports , http://www.express.com/custserv/investor_relations.jsp ( 17th April, 2013)