Financial Analysis: Tiffany and Company
Tiffany and Company is a multinational Luxury jeweller and Speciality Retailer. The company has its headquarters in New York City and the product line includes:
- Sterling Silver
- Leather Goods
- Personal Accessories
The company is known in particlaur for it sluxury ornaments particularly diamond jewellery. As for its listing, company is listed in New York Stock Exchange under the ticker of ‘’TIF’’.
Extracts from Financial Statements:
Current Market price: $88.04
Market Capitalization: $11.26 Billion
/> 52 Week Change: 60.70%
Dividend Yield: 1.70%
Earning per Share: $3.37
Comparison with S&P 500:
Comparison with PRADA SPA(Peer Review):
Price Sentiments over last two years:
At the time of rating, tsokc of Tiffany and Company was trading at the price level of $88.04 with a reported decrease of 1.23% compared to previous day trading. Refering to last one year stock chart we find that the stock price has been on increasing trend and is now trading at its highest level. The 52 week range of the stock had been 55.83-89.72. However, the stock of Tiffany and Company is trading at 24.42 times trailing 12 month EPS and is over-priced when compared to optimum industry PE ratio of 13.36. The EPS has grown at 2.59% annulaized rate during last two years and this could now decelerate given reducing trend in margins of the company. Thus, we find that their could soon be pressure on stock price.
In comparison to S&P 500 Index and same indsutry peer review, stocks of Tiffany and Company is in premium however even though Tiffany is going higher in comparison to S&P 500’s forward PE Ratio of 15.20 but is lower than its trailing PE. Thus, investors may find more value in the company’s future earnings than they do in the stock market in general despite of its average fundamental grades
In order to understand the financial health of the company, it is required to carry out ratio analysis of the company.
Our analysis above indicates that the liquidity position of the company had improved in comaporsion to 2012. However, during 2012 with increase in current liabilitie sin proportion to current assets, company had faced liquiudty issues with its liquidity falling as disclosed in our ratio analysis.
Gross Profit Ratio:
Operating Profit Ratio:
Net Profit Ratio:
In terms of profitability, our ratio analysis indicates that the company is growing low on its profits. The year of 2013 was not profitable for the company in all arenas. Although the company expereinced rise in its profiatbility ratios during 2012 , during 2013 both its gross margins and operating margins had a sharp fall. Howeevr even though, Net Profit Margins had a marginal decline, it was an indication that company has controlled non-operating expenses and it needs to take care of its operations.
These ratios are considered to be the most important indicator of financial health of the company as it disclose the percentage of Debt in its capital structure.
Debt to Equity Ratio:
Interest Coverage Ratio:
Analyzing the financial leverage ratio of the company we find that although the company increased the percentage of debt from 2011 to 2012 but during 2013 it reduced the amount of debt in its capital structure with its debt equity ratio prevailing at 29.30 as comapred to 36.70% during 2012.
Although, the debt equity ratio of the company is in line with indutsry average of 30%, the major concern for the company is the low interest coverage ratio of 11.9 which is way below than industry avergae of 84.1. Thus, we are coming to conclusion that 2013 was indeed a poor financial year for the company.
Asset Efficiency Ratios:
Asset Turnover Ratio:
Inventory Turnover Ratio:
Our analysis on asset efficiency of the company turns out with same conclsuion that indeed 2013 was not a good financial year for the company. The asset turnover ratio of the company though improved during 2012 but during 2013 it again experienced a decreasing trend. Similarly in terms of efficiency of using its inventory, the same trend was seen as ITR also decreased to .75 in comparison to .80 during 2012.
Dupont Analysis:Tiffany and Company
ROE = (net income / sales) * (sales / assets) * (assets / equity)
2011: (368403/3085290) *(3085290/37356119)* (3735619/2177475)= 16.91%
2012: (439190/3642937)* (3642937/4158992)* (4158992/2348905)= 18.69%
2013: (416157/3794249)* (3794249/4630850)* (4630850/2598732)= 16.01%
WACC for Tiffany and Company:
Weighted Average Cost of Capital is the calcuation of a firm’s total cost of capital where all its category of capital are proportionally weighted. As for Tiffany and Company, the company have total debt(long term) of $765238 while the equity is $2598732, making the total capial structure of $3363970. The respective weights of debt and equity are as under:
Debt: 765238/3363970*100 = 22.74%
Refering to market research reports, the tota cost of debt post taxation is 0.39% . As for taxation, company is in the tax bracket of 34.9%. Similarly, the cost of equity is 6.48% in relevance to beta of 1.72.
Thus, WACC of the company is:
Weight of Debt* Cost of Debt(1-tax rate) + Weight of Equity*Cost of Equity
= 0.2274*.0039 + .7725*.0648
Our Rating: Sell
Our ratio analysis and other fundamental analysis including stock price movement indicates that we should sell our stock of Tiffany and Company as the company is going low on profits and with reducing asset turnover ratios and substantially low Interest Coverage Ratios compared to Industry Standards, we do not expect much from this stock. Although the capital structure of the company is well managed and conswervative with debt equity ratio maintained at a rational level but decreasing profitability and low interest coverage ratio has provided an indication that the health of the stock will soon experience a downward trend.
Market Grader. Tiffany and Company. Research Report. Chicago, 2013. Web Document.
Tiffany and Company. "Annual Report 2012." Annual Report. 2012. PDF Document.