Ted Bakers Company Industry Analysis - Report Example

Inter-Firm and Industry Analysis Table of Content Table of Content 2 Executive Summary 3 Inter-firm and Industry Analysis 4 Inter-Firm Analysis 5 Profitability Analysis 5 Inter-Firm Profitability Ratios and Graphs 5 Inter-Firm Profitability Ratios Analysis 8 Income Statement Analysis 11 Common Sized Income Statement 11 Passport Brands Common Size Income Statement 12 Ted Bakers Common Size Income Statement 13 Common Size Income Statement Analysis 14 Horizontal Income Statement Analysis 14 Passport Income Statements Trend 14 Ted Baker Income Statement Trend 15 Industry Analysis 16 Passport vs. Industry 16 Ted Bakers vs. Industry 18 SWOT Analysis 20 Conclusion 21 Reference 22 Executive Summary Inter-firm and industry analysis undertaken under this paper demonstrates an optimal firm that an investor should consider under the portfolio selection. This has been done through financial ratio and SWOT analysis. The analysis shows that Ted Bakers should be considered by a rational investor compared to Passport Brands. This is due to the return on common equity that Ted Bakers promises to the investors. Furthermore, the SWOT analysis undertaken shows that Ted Bakers has an added advantage to increase its profitability that is essential in enhancing the returns to investors. Thus, the analysis concludes that a rational investor should consider investing his/her capital under Ted Bakers Company. 1. The return on equity shows that Ted Bakers is more profitable compared to Passport Brands. 2. The favorable ROE of Ted Bakers has been triggered by assets productivity as reflected by the RNO ratios. 3. Similarly, the FLEV ratios reflect that Ted Bakers faces a lower financial obligation that is critical in maximizing the financial return to common equity shareholders. 4. The lower NBC ratio for Ted Baker compared to Passport Brands reflects that the firm is facing lower costs in servicing it financial obligations that ensures returns to the equity shareholders is not distorted significantly compared to that of Passport Brands shareholders. 5. The operating margin ratio and asset turnover ratio for the two firms reflect Ted Bakers has better expenses control and asset resources utilization respectively compared to Passport Brands. 6. The favorable financial ratios for Ted Bakers reflect that the firm is more profitable in maximizing the wealth of the equity shareholders compared to Passport Brands. Introduction Financial analysis is an instrumental market tool since it helps internal and external stakeholders of a company to evaluate the financial performance and position of an organization of interest. This is because financial analysis depicts the potential of firms in maximizing the wealth of the investors if they invest their capital in that company (Gibson, 2012). Thus, it is important for an investor or interested parties to analyze the suitability of a given firm using financial analysis tools. Financial analysis is undertaken using the financial statements of an organization since they depict the financial performance and position of an organization. This helps in comparing the performance of various firms under consideration of the investor’s portfolio to measure the potential of maximizing investor’s wealth. Consequently, an inter-firm and industry analysis has been undertaken in this paper using financial analysis. In addition, the financial analyses of the firms and industry has undertaken through profitability analysis by employing financial ratios for the last five financial years. The analysis evaluates two firms from UK and US and their respective industry performance. The two firms that have selected under the analysis are Ted Baker plc and Passport Brands from UK and US respectively. Inter-firm and Industry Analysis The financial statements of the firms have been reformulated to segment the financial data into operating and financing activities. Thus, the reformulated financial data are the one that have been utilized in undertaking the financial analysis. This allows the financial analyses undertaken to represent an accurate position of the different firms under analyses. Similarly, the financial data that have been used in deriving the financial analysis are from balance sheet and income statements. This is because the two financial statements are primary in depicting the financial position and performance of a form respectively. In addition, the profitability analyses of the firms have been demonstrated by simulating the return on equity model (ROE). Inter-Firm Analysis Profitability Analysis One of the inter-firm analysis tools that have been used in analyzing is the profitability analysis. The profitability analysis evaluates the return potential of the two firms due their performance over the years analyzed. Thus, the table below reflects the profitability of the two firms under consideration using the reformulated financial statements. The profitability ratios have been derived from ROCE through two levels as depicted in the table below. Similarly, the comparative graphs of the two firms reflected below depict the profitability trend in the last five years. This helps in evaluating the profitability of the two firms for an interested investor. Inter-Firm Profitability Ratios and Graphs DRIVERS OF PROFITABILITY (ROCE)     2013 2012 2011 2010 2009 ROCE Ted Baker 0.22 0.21 0.23 0.20 0.20   Passport Brands -5.02 0.15 0.49 0.51 -0.31               First-Level Decomposition   RNOA Ted Baker 0.19 0.19 0.23 0.21 0.21   Passport Brands -2.61 0.13 0.39 0.37 -0.04               FLEV Ted Baker 0.20 0.07 0.00 0.00 -0.04   Passport Brands 0.90 0.32 0.34 0.55 1.95     SPREAD Ted Baker 0.16 0.16 0.52 0.70 0.28 (RNOA-NBC) Passport Brands -2.68 0.07 0.28 0.24 -0.14     NBC Ted Baker 0.03 0.03 -0.29 -0.49 -0.07   Passport Brands 0.07 0.06 0.11 0.13 0.09               Second Level Decomposition   PM Ted Baker 0.09 0.08 0.09 0.08 0.08   Passport Brands -0.42 0.04 0.08 0.09 -0.01     ATO Ted Baker 0.46 0.42 0.40 0.40 0.39   Passport Brands 0.16 0.27 0.21 0.23 0.25 ROCE Graph RNOA Graph FLEV Graph NBC Graph Profit Margin Graph Asset Turnover Graph SPREAD Graph Inter-Firm Profitability Ratios Analysis The profitability ratios reflected in the table above reveals that Ted Baker is more profitable compared to Passport Brands. Thus, investors should expect to earn more by investing their capital under Ted Baker firm due to its superior profitability potential. The profitability of the firms has been derived by the profitability drivers that determine the returns common equity holders should expect from their capital investment (Sinha, 2009). The ROCE is the return on common equity that reflects the return common shareholders should form their capital investment. Thus, the ROCE ratios reflected for the two firms in the last five years reflect that on average, Ted Bakers promise a higher ROCE compared to Passport Brands Company. This is because the ROCE trend of the two firms over the last five years reflects that Ted Bakers has been able to maintain a higher return compared to Passport firm. Consequently, investors investing the capital in Ted Bakers should expect to earn higher return on the capital investment compared to investors investing under Passport Brands plc (Brigham & Houston, 2009). The realization of the ROCE is derived from the various drivers of a firm’s profitability. One of the profitability drivers is return on net operating assets (RNOA). RNOA depicts the ability of the firm to generate profit from utilization of the assets it possesses (Ingram & Albright, 2009). Thus, the RNOA helps in measuring the ability of the firm in creating value that enhances the equity holders’ return using it assets. Thus, the RNOA of the two firms depicted in the table above reflects the ability of the firms in utilization their assets to generate profits for the equity investors. Ted Bakers Company RNOA trend over the last five years reflects that firm has been able to generate positive income using it assets while Passport Brand has on occasion been unable to utilize it assets to generate positive income. This reflects that Ted Bakers Company utilizes it asset resources optimally to enhance the performance compared to it peer Passport Brands firm (Rajasekaran & Lalitha, 2011). Consequently, the ROCE that investors should expect from the two firms will be higher in Ted Bakers Company compared to Passport Brands due to the ability of the firm to use it asset resources optimally to enhance profitability. Similarly, financial liability leverage (FLEV) profitability driver depicts that ROCE will be higher under Ted Bakers. FLEV reflects the proportion of the firm’s financial obligations to shareholders’ equity (Wahlan, Baginski, & Bradshaw, 2010). Consequently, a high FLEV implies that the firm is facing high financial obligations. This has the potential of reducing the income attributable to the common shareholders since the firm will be forced to part away with a huge amount of the firm income to meet it high financial obligations. Ted Bakers FLEV in the last five years analyzed is considerably lower to that of Passport Brands as reflected in the inter-firm profitability ratios above. This implies that a huge portion of Passport Brands income will be distributed in meeting financial obligations compared to the proportion Ted Bakers income that will be distributed in servicing financial obligations in future (Gibson, 2012). Consequently, common shareholders of Ted Bakers will earn a higher proportion of income generated by the firm compared to shareholders of Passport Brands firm. This will push the ROCE of passport downward drastically compared to that of Ted Bakers firm. Another first level profitability driver attributed to the favorable Ted Bakers ROCE over that of Passport Brands is SPREAD ratio. SPREAD ratio depicts the differential margin of operating assets profitability and the cost of borrowed capital (Moyer, 2012). Consequently, a higher SPREAD means that the firm is able to retain a higher proportion of income after servicing the borrowed capital interest. The profitability analyses of the two firms in that table above depicts that Ted Bakers on average has a higher SPREAD ratio compared to Passport Brands firm. Thus, the proportion of firm’s profit is available to be distributed common shareholders is higher under Ted Bakers firm compared to Passports Brands due to it higher SPREAD ratio. This makes the ROCE to be higher under Ted Bakers compared to Passport Brands. In addition, the net borrowing cost (NBC) illustrates common shareholders of Ted Bakers will expect a higher ROCE compared to Passports Brands. This is because a high NBC of Passport firm implies that a firm is facing high expenses servicing it financial obligations (Khan & Jain, 2010). Consequently, the proportion of income that will be distributed to common shareholders of Passport will be lower to that of Ted Bakers. Thus, the ROCE of Ted Bakers will be higher to that of Passport Brands due to the high proportion of income that is available to be distributed to shareholders. The second level of ROCE decomposition has been analyzed through operating profit margin (PM) and asset turnover (ATO). The operating profit margin measures the proportion of the revenue that is left after the firm incurs it operating expenses. Consequently, a high operating profit margin implies that the firm has a better cost control that enables it to be left with huge part of the revenue generated (Wahlan, Baginski, & Bradshaw, 2010). The profitability analysis above implies that Passports Brands operating profit margin ratio over the five years has been relatively lower compared to Ted Bakers. Consequently, Ted Bakers is able to generate a higher income to be distributed to shareholders compared to Passports Brands. This scenario drives the ROCE of Ted Bakers to be higher to that of Passport Brands. Similarly, the asset turnover ratio helps in determining the ROCE of a firm. Asset turnover ratio measures the efficiency of the firm management in utilizing the asset resources to generate sales. Consequently, a high asset turnover indicates the efficiency of the firm in utilizing its asset to generate sales is high. The asset turnover for the two firms depicted in the table above reflects Ted Bakers efficiency in utilizing its assets to accumulate sales revenue is relatively higher to that of Passport Brands over the five years trend (Brigham & Houston, 2009). This implies the ability of Ted Bakers to generate revenue that is essential in determining the firm’s income distributable to shareholders is high compared to Passports Brands. Thus, ROCE of Ted Bakers will be higher to that of Passports Brands. Income Statement Analysis The two firms financial performance has also, been evaluated using the income statement movement over the last five years. This has been done using the income statement horizontal trend and common size income statement. These two approaches help in demonstrating the movement of the income statement over the financial years under consideration. Common Sized Income Statement The income two common sized income statements reflect the vertical financial position of the two firms over the last five years. The financial statements help in depicting the proportion of the various income statement components to sales revenue generated by the firm in each of the financial year. Passport Brands Common Size Income Statement 01/26/2013 % of Revenues 01/28/2012 % of Revenues 101/29/2011 % of Revenues 01/30/2010 % of Revenues 01/31/2009 % of Revenues           Operating Income 100.00 100.00 100.00 100.00 100.00 Revenues 69.25 58.76 58.23 60.68 64.85 Cost of sales 30.75 41.24 41.77 39.32 35.15 Gross margin 64.92 33.89 32.86 32.09 35.74 Operating expenses -7.13 0.01 -2.10 0.03 -0.44 Other operating income (expense) -41.30 7.36 6.81 7.25 -1.04 Operating income from sales(before tax)           Taxes 0.21 3.42 -1.41 -1.30 0.00 Tax as reported           Other tax adjustments 0.00 0.00 0.00 0.00 0.00 Tax benefit on net interest -41.51 3.93 8.22 8.55 -1.04 Operating income from sales (after tax)           Dirty surplus items 0.00 0.00 0.00 0.00 0.00 Equity Earnings -41.51 3.93 8.22 8.55 -1.04 Operating Income (after tax)           Financing Expense (Income) 0.57 0.78 0.53 0.91 1.53 Interest expense 0.04 0.01 0.01 0.01 0.00 Interest income           Other interest adjustments 0.53 0.76 0.52 0.90 1.52 Net interest expense           less Tax benefit from Net Interest Expense           Preferred dividends 0.53 0.76 0.52 0.90 1.52 Net Financial Expense (after tax)           Minority interest -42.04 3.17 7.70 7.64 -2.56 Comprehensive income to Common           Comprehensive Income to Common as per Thomson Ted Bakers Common Size Income Statement 01/26/2013 % of Revenues 01/28/2012 % of Revenues 01/29/2011 % of Revenues 01/30/2010 % of Revenues 01/31/2009 % of Revenues           Operating Income 100.00 100.00 100.00 100.00 100.00 Revenues 34.07 35.14 34.87 35.07 37.54 Cost of sales 65.93 64.86 65.13 64.93 62.46 Gross margin 56.35 55.64 55.51 55.72 53.60 Operating expenses 2.02 2.05 3.21 2.74 2.84 Other operating income (expense) 11.61 11.27 12.83 11.95 11.69 Operating income from sales(before tax)           Taxes 2.88 3.11 3.70 3.65 3.40 Tax as reported           Other tax adjustments 0.00 0.00 0.00 0.00 0.00 Tax benefit on net interest 8.73 8.17 9.13 8.30 8.29 Operating income from sales (after tax)           Dirty surplus items 0.00 0.07 0.09 0.05 0.05 Equity Earnings 8.73 8.24 9.22 8.35 8.34 Operating Income (after tax)           Financing Expense (Income) 0.25 0.10 0.03 0.09 0.20 Interest expense 0.01 0.00 0.02 0.01 0.10 Interest income           Other interest adjustments 0.24 0.09 0.02 0.08 0.11 Net interest expense           less Tax benefit from Net Interest Expense           Preferred dividends 0.24 0.09 0.02 0.08 0.11 Net Financial Expense (after tax)           Minority interest 8.49 8.14 9.21 8.30 8.25 Comprehensive income to Common Common Size Income Statement Analysis The common sized income statement for the two firms depicts that the profitability of Passport Brands has been going down while that of Ted Waters has been on upward trend. This is reflected by the trend of the income attributable to common shareholders over the five years of analysis. The income attributable to common shareholders of Ted Bakers has rise from 8.25% of the net sales revenue realized in 2009 to 8.49% in 2013 as reflected in the table above. In contrast, the income attributable to common shareholders for Passport Brand has sunk from -2.56 of sales revenue accumulated in 2009 to -42.04 in 2013. Consequently, the return that shareholders of Ted Bakers expects has high potential of rising in future while that of Passport has potential of slowing down in future due to the trend of the comprehensive income of the last five years. Horizontal Income Statement Analysis Passport Income Statements Trend   01/26/2013 USD 01/28/2012 USD 01/29/2011 USD 01/30/2010 USD 01/31/2009 Operating Income % % % % % Revenues 56.19 124.18 125.77 121.78 100 Cost of sales 60.01 112.51 112.93 113.95 100 Gross margin 49.16 145.70 149.45 136.22 100 Operating expenses 102.06 117.74 115.61 109.35 100 Other operating income (expense) 911.58 -2.19 601.29 -9.00 100 Operating income from sales(before tax) 2,240.46 -881.72 -826.40 -852.69 100 Taxes           Tax as reported 0.00 0.00 0.00 0.00 100 Other tax adjustments         0 Tax benefit on net interest 0.00 0.00 0.00 0.00 100 Operating income from sales (after tax) 2,251.51 -428.93 -1,008.21 -1,024.09 100 Dirty surplus items           Equity Earnings           Operating Income (after tax) 2,251.51 -428.93 -1,008.21 -1,024.09 100 Financing Expense (Income)         100 Interest expense 21.13 63.25 43.61 72.76 100 Interest income 834.70 579.00 249.70 327.15 100 Other interest adjustments           Net interest expense 19.51 62.23 43.20 72.26 100 less Tax benefit from Net Interest Expense 0.00 0.00 0.00 0.00 100 Preferred dividends           Net Financial Expense (after tax) 19.63 33.25 50.06 85.22 100 Minority interest           Comprehensive income to Common 922.92 -153.80 -378.24 -363.74 100 Comprehensive Income to Common as per Thomson 922.92 -153.80 -378.24 -363.74 100 Ted Baker Income Statement Trend   01/26/2013 GBP 01/28/2012 GBP 01/29/2011 GBP 01/30/2010 GBP 1/31/2009 Operating Income % % % % % Revenues 166.69 141.24 122.95 107.16 100.00 Cost of sales 151.30 132.21 114.22 100.10 100.00 Gross margin 175.94 146.67 128.20 111.40 100.00 Operating expenses 175.21 146.61 127.33 111.39 100.00 Other operating income (expense) 118.97 102.15 139.35 103.67 100.00 Operating income from sales(before tax) 165.44 136.16 134.91 109.55 100.00 Taxes         100.00 Tax as reported 140.92 128.86 133.67 114.99 100.00 Other tax adjustments           Tax benefit on net interest 0.00 0.00 0.00 0.00 0.00 Operating income from sales (after tax) 176 139 135 107 100.00 Dirty surplus items           Equity Earnings 0.00 198.67 232.00 114.67 100.00 Operating Income (after tax) 174 140 136 107 100.00 Financing Expense (Income)           Interest expense 210.42 67.75 21.17 48.21 100.00 Interest income 23.29 4.79 23.97 6.85 100.00 Other interest adjustments 0.0 0.0 0.0 0.0 0.00 Net interest expense 380.12 124.84 18.63 85.71 100.00 less Tax benefit from Net Interest Expense 0 0 0 0 0.00 Preferred dividends           Net Financial Expense (after tax) 380.12 124.84 18.63 85.71 100.00 Minority interest           Comprehensive income to Common 172 139 137 108 100.00 The horizontal analysis of the income statement of the two firms uses the 2009 financial year as the base year to evaluate the movement of the various income statement components to the base year over the last five years. The horizontal analysis of the two firms reflects that the profitability of Ted Baker has been performing better compared to Passport Brands. This is reflected by the movement of the comprehensive income to common shareholders over the last five years. Even though the income level of Passport Brands in 2013 is considerably high to the benchmarked year compared to that of Ted Baker, the trend shows that the income statement of the firm has been relatively in the past years. In contrast, Ted Baker has been able to maintain a rising profitability trend in the past four years. This implies that profitability of Ted Baker is more guaranteed compared to that of Passport Brands. Industry Analysis Passport vs. Industry Passport Brands profitability has also, been compared with industry peers in the US market that it operates using five competitors. The comparative financial analysis has been undertaken using the profitability approach ratios reflected in the table below. DRIVERS OF PROFITABILITY (ROCE)   2013 2012 2011 2010 2009 ROCE Cherokee 0.62 0.70 5.34 1.30 0.63 Coach 0.43 0.49 0.51 0.45 0.34 Sequential 4.2977 0.9310 -0.5099 0.1258 -2.7216 Superior 0.08 0.05 0.07 0.06 0.03 Tandy -2.5206 -0.1368 -0.4357 0.0291 -0.3972 Average 0.58 0.41 0.99 0.40 -0.42   First-Level Decomposition RNOA Cherokee 0.25 0.43 0.89 1.30 0.63 Coach 0.44 0.49 0.50 0.47 0.34 Sequential -9.698 2.486 -0.945 -0.093 -0.658 Superior 0.06 0.05 0.07 0.06 0.03 Tandy -1.053 -0.059 -0.257 -0.045 -0.382 Average -2.00 0.68 0.05 0.34 -0.01   FLEV Cherokee 1.49 0.65 5.02 0.00 0.00 Coach -0.03 0.01 0.01 -0.05 0.02 Sequential -0.428 -0.375 0.418 0.001 0.365 Superior 0.36 0.00 0.01 0.00 0.00 Tandy 1.191 0.442 0.566 0.226 0.000 Average 0.52 0.14 1.21 0.04 0.08   SPREAD Cherokee 0.24 0.41 0.89 0.00 0.00 Coach 0.42 0.51 0.54 0.41 0.40 Sequential -10.6142 2.3573 -1.1129 -96.1196 -0.8921 Superior 0.06 0.00 0.04 0.00 0.00 Tandy -1.2324 -0.1763 -0.3152 0.3269 0.0000 Average -2.23 0.62 0.01 -19.08 -0.10   NBC Cherokee 0.01 0.02 0.00 0.00 0.00 Coach 0.02 -0.02 -0.04 0.07 -0.06 Sequential 0.916 0.129 0.167 96.027 0.234 Superior 0.01 0.00 0.03 0.00 0.00 Tandy 0.179 0.117 0.058 -0.372 0.000 Average 0.23 0.05 0.04 19.14 0.03   Second Level Decomposition PM Cherokee 0.26 0.30 0.25 0.39 0.39 Coach 0.20 0.22 0.21 0.20 0.19 Sequential -1.5817 -1.0563 -0.0944 -0.0129 -0.0927 Superior 0.04 0.03 0.04 0.04 0.02 Tandy -0.1540 -0.0193 -0.1007 -0.0161 -0.1126 Average -0.246 -0.106 0.061 0.119 0.080   ATO Cherokee 1.04 0.69 0.28 0.30 0.63 Coach 0.46 0.45 0.42 0.43 0.57 Sequential 0.1631 -0.4249 0.0998 0.1392 0.1409 Superior 0.65 0.48 0.55 0.58 0.58 Tandy 0.1462 0.3274 0.3915 0.3600 0.2949 Average 0.49 0.30 0.35 0.36 0.44 On average, the industry performance is better compared to that of Passport Brands over the last years. The industry ROCE over the last five years has been higher to that of Passport Brands that implies the industry is able to reward investors better than the firm. This has been attributed by the profitability average drivers of the industry that have been better compared to that of Passport Brands in enhancing the return common shareholders should expect from their capital investment. Ted Bakers vs. Industry Similarly, Ted Bakers has been analyzed against it peers in the UK textile industry using the average profitability ratios that are reflected in the table below. DRIVERS OF PROFITABILITY (ROCE)   2013 2012 2011 2010 2009 ROCE Abbeycrest -0.44 0.22 -1.58 -0.27 -0.03 Mulberry Group 0.24 0.41 0.41 0.11 0.11 Pittard PLC 0.02 0.23 0.32 0.37 -0.20 Sperati 1.01 8.91 -3.12 -0.14 0.02 Supergroup PLC 0.16 0.20 0.20 0.62 0.37 Average 0.20 1.99 -0.76 0.14 0.05   First-Level Decomposition RNOA Abbeycrest -0.19 0.14 -0.61 -0.08 0.09 Mulberry Group 0.24 0.40 0.41 0.11 0.10 Pittard PLC 0.02 0.18 0.25 0.21 -0.02 Sperati 1.03 8.91 -3.12 -0.15 0.03 Supergroup PLC 0.16 0.20 0.20 0.61 0.28 Average 0.25 1.97 -0.57 0.14 0.10   FLEV Abbeycrest 0.85 1.22 1.25 0.86 0.78 Mulberry Group 0.00 0.00 0.00 0.00 0.00 Pittard PLC 0.42 0.39 0.37 0.91 1.89 Sperati -0.04 0.00 0.00 -0.01 -0.01 Supergroup PLC -0.00 0.00 0.01 0.01 0.39 Average 0.25 0.32 0.33 0.36 0.61   SPREAD Abbeycrest -0.28 0.07 -0.78 -0.22 -0.15 Mulberry Group 0.00 0.00 0.00 0.00 0.00 Pittard PLC -0.02 0.13 0.17 0.18 -0.10 Sperati 0.45 0.00 0.00 -1.27 1.98 Supergroup PLC -0.09 0.30 0.27 0.23 0.24 Average 0.01 0.10 -0.07 -0.22 0.39   NBC Abbeycrest 0.09 0.07 0.17 0.14 0.23 Mulberry Group 0.00 0.00 0.00 0.00 0.00 Pittard PLC 0.04 0.05 0.08 0.03 0.08 Sperati 0.58 0.00 0.00 1.12 -1.95 Supergroup PLC 0.25 -0.10 -0.07 0.38 0.04 Average 0.19 0.00 0.04 0.33 -0.32   Second Level Decomposition PM Abbeycrest -0.06 0.06 -0.17 -0.04 0.04 Mulberry Group 0.11 0.15 0.14 0.04 0.04 Pittard PLC 0.01 0.10 0.11 0.12 -0.00 Sperati -1.43 -1.51 -1.41 -0.28 0.03 Supergroup PLC 0.10 0.11 0.13 0.52 0.10 Average -0.253 -0.217 -0.240 0.073 0.044   ATO Abbeycrest 0.33 0.40 0.27 0.44 0.51 Mulberry Group 0.48 0.37 0.35 0.37 0.42 Pittard PLC 0.60 0.57 0.44 0.60 0.20 Sperati -1.39 -0.17 0.45 1.91 1.30 Supergroup PLC 0.62 0.59 0.64 0.85 0.37 Average 0.13 0.35 0.43 0.83 0.56 The performance of Ted Bakers compared to its peers in the industry using average ratios reflects the firm’s performance is relatively similar to the industry. This is reflected by the ROCE of the industry against that of the firm over the last five years that has a small deviation. Thus, the firm has been able to perform optimally that is essential in maximizing the common shareholders return. SWOT Analysis The two firms depict a number of strengths, weaknesses, opportunities and threats due their internal and external environment they face. One of the strengths that Ted Baker faces is high revenue and profitability. The financial analysis reveals that the organization has a high revenue and profitability compared to it peer Passport Brands. This has the potential of allowing the organization to grow and survive in the market. Similarly, the firm faces a favorable labor cost due to the technological advancement it has introduced. This allows the firm to expand it investment due to low cost of production that ensures it profitability is high. However, the competitive and open European market is a significant weakness the firm faces. In addition, the inability of the management to create a close relationship with employees is a weakness facing the organization. This has seen the organization facing frequent trade disputes that affects it potential to grow. However, the high income levels of the European population are a significant opportunity for the firm to increase its profitability in future. Furthermore, the opening of the European market gives the firm an opportunity to increase its sales revenue by optimally taking advantage of the wide market. The current domination of the textile industry by Chinese firms due to cheap labor is a potential threat to the growth of the firm. This is because the textile products from China are of low price that has the potential of hindering the firm from distributing it products optimally in the global market. Passport Brands also, has strengths that allow the firm to compete in the market optimally. One of the strengths of the firm is it marketing strategy of word of mouth that has enabled the firm to create brand awareness. This has enabled the firm to survive in a competitive global economy. Similarly, the customer satisfaction strategy the firm employs has enabled the firm to create brand awareness that reinforces market penetration. However, the firm significant internal weakness is poor product innovation. The firm has failed to come up with an effective product innovation strategy that has hindered it profitability. In addition, the firm has a poor market segmentation that hinders it from penetrating the market optimally. The firm only produces teenager products that hinder it from reaching the entire market. However, the recent acquisition in Asia and South America is an opportunity that has the potential of enabling the firm to expand internationally. In addition, the liberalization of the European market gives the firm the opportunity to enter the market to boost its earnings. One of the major threats the firm faces that is likely to hinder it future growth is increasing interest rates. The high interest rates in US have the potential of hindering the firm from accessing capital to expand it investment. In addition, the recent financial crisis has the potential of hindering the firm from accessing capital at favorable conditions due to the stiff rules been applied by financial institutions. Conclusion Owing to the profitability analysis results of the two firms, it is recommendable for an investor intending to invest their capital in the industry to invest under Ted Bakers plc. This is due to its high potential of promising the common shareholders a higher return of the capital investment as reflected by the comparative analysis of the two firms. Ted Bakers profitability trend compared to that of Passport Brands has been superior. Even though Passport Brands Company has been able to remain profitable in a competitive market, the financial analysis and SWOT analysis reflect that the firm has the potential of failing to increase investors’ wealth in future. Wealth maximization is the main objective for investors to select an investment under his portfolio. Consequently, a rational investor should consider investing their capital in Ted Bakers over Passports Brands to maximize their wealth in future. Reference Brigham, E. F., & Houston, J. F. (2009). Fundamentals of financial management. Mason, OH: South-Western Cengage Learning. Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: A practitioners guide. Hoboken, N.J: Wiley. Gibson, C. H. (2012). Financial Reporting and Analysis. Boston: South-Western Pub. Ingram, R. W., & Albright, T. L. (2009). Financial accounting: Information for decisions. Mason, OH: Thomson/South-Western. Khan, M. Y., & Jain, P. K. (2010). Financial management. New Delhi: McGraw-Hill. Moyer, R. C. (2012). Contemporary financial management. Mason, OH: South-Western, Cengage Learning. Peterson, D. P., & Fabozzi, F. J. (2012). Analysis of financial statements. Hoboken, New Jersey: John Wiley & Sons. Rajasekaran, V., & Lalitha, R. (2011). Financial accounting. New Delhi: Dorling Kindersley. Sinha, G. (2009). Financial statement analysis. New Delhi: PHI Learning Pvt Ltd. Thomson-Reuters. (2014). Ted Bakers corporation profile. Retrieved March 25, 2014, from http://www.reuters.com/finance/stocks/companyprofile?symbol=TED.L Wahlan, J., Baginski, S., & Bradshaw, M. (2010). Financial reporting, financial statement analysis and valuation: A strategic approach, Seventh-Edition. Boston, OH: South-Western. Read More