Financial Analysis: Tiffany & Co - Essay Example

April 3, Financial Analysis: Tiffany & Co. (TIF) a) Discussing Tiffany in the context of the force considered in performing an environmental scan With the rapidly changing business environment, performing an environmental scan is becoming increasingly important for business entities like Tiffany. Performing an environmental scan enables the organization to gather information that facilitates changing of a condition and incorporating the observations into a process which makes the necessary changes. In performing an environmental scan, six environmental factors are taken into consideration. These include economic, political, social, technological, competitive and geographical. Conducting this scan should be able to provide the investors with an insight into the industry while also helping to build a basis for a more comprehensive analysis. In discussing Tiffany in the context of the forces considered in performing and environmental scan, it has been evident that the last couple of years, politics and economics have continued to play a critical role in driving different companies in the jewelry industry so as to stay competitive. The issue of blood diamonds continue to elicit mixed reactions. The current economic conditions has made the jewelry industry face a downturn especially in occasions like the Valentine’s Day and Christmas. b) The risks that Tiffany needs to consider in conducting its operations The risks that Tiffany needs to consider in conducting its operations include the abundance of counterfeit goods which is adversely affecting the sales of the branded accessories for Tiffany. This is further worsened by the increasing internet retailing which continues to make Tiffany’s efforts in fighting counterfeit goods more challenging and consequently makes the company to lose its brand equity hence a threat because of increases customer dissatisfaction due to the detrimental image of the company. Another threat continues to be the slowdown in the US economy which continues to depress the purchasing power of the retail customers hence having a counter effect on the growth of revenue and the margins of the company. The fact that this does not augur well for retail chains like Tiffany makes it threat that needs serious consideration. c) Whether TIF can take on more debt To establish whether TIF can take on more debt, we computed the company’s debt ratio or capital gearing ratio which measures the proportion of debt finance capital employed by the company. The debt ratio of Tiffany is 43.41% hence the company’s financial position as regards to debts is healthy as it is less geared. The debt equity ratio provides a measure of the proportion of non-owner supplied funds to owner’s contribution. Tiffany’s debt equity ratio is 59.25% meaning that the company is lowly geared. In this regard, we would be justified to conclude that Tiffany can take on more debt. d) TIF’s inventory position Previously, Tiffany’s employed the LIFO costing method consequently creating the highest inventory expenses in addition to portraying lower profit margins and more conservative accounting. The company consequently switched from LIFO to average cost which inflated profits by lowering the expenses on inventory. Read More