Accounting Financial Analysis Report for Michael Kors Holding Limited

This report provides a financial analysis of Michael Kors Holding Limited, including horizontal analysis of consolidated statements of operation and balance sheet. It also discusses the risks associated with the acquisition of Versace.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting financial analysis report
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ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Answer 1 (b)...............................................................................................................................2
Answer 2 (a)...............................................................................................................................5
Answer 2 (b)...............................................................................................................................5
Answer 2 (c)...............................................................................................................................5
Answer 3 (a)...............................................................................................................................6
Answer 3 (b)...............................................................................................................................6
Answer 3 (c)...............................................................................................................................6
Answer 4 (a)...............................................................................................................................6
Answer 4 (b)...............................................................................................................................7
Answer 4 (c)...............................................................................................................................7
Answer 5....................................................................................................................................7
Answer 6....................................................................................................................................7
Answer 7 (a)...............................................................................................................................7
Reference..................................................................................................................................10

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ACCOUNTING FINANCIAL ANALYSIS REPORT

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Answer 1 (b)
Looking into the quarterly performance of the entity for the 2nd quarter of 2019 fiscal
year it can be identified that though the revenues of the brand were lower by 0.8% as
compared to expectation, the entity was able to derive better gross margin, better operating
margin and earnings per share as compared to the expectation. CEO of the entity was happy
to announce that the results exceeded the expectation and EPS guidance to the range of $ 4.95
to $ 5.05 that reflects the double digit growth in earnings for the year under concern. Further,
with the acquisition of Versace the entity built itself among the leading group for fashion
luxury goods in the world in just 1 year period.
If the overall performance of the company that is Michael Kors Holding Limited it
can be identified that total revenue enhanced by 9.3% that is amounted to $ 1.25 billion
including $ 116.7 million generated from Jimmy Choo. Further, gross profit was 60.9% as
compared to 60.2% for the previous year. However, if only the segment result of Michael
Kors is considered it can be identified that its operating margin was dropped to 10.5% as
compared to 10.7% for the previous year.
Horizontal analysis of consolidated statements of operation

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ACCOUNTING FINANCIAL ANALYSIS REPORT
From the above horizontal analysis of revenue statement it can be identified that total
revenue of the company has been increased by 17.02% for the 6 months ended September
2018 as compared to the 6 months ended September 2017. Further, the gross profit for the
same period increased by 19.63% as compared to the previous period ended for 6 months
(Robinson et al., 2015). However, the net income was reduced by 1.49% for the 6 months
ended September 2018 as compared to the 6 months ended September 2017. Irrespective of
increase in the revenues and gross profit, the net income shown reduction due to increase in
the interest expenses by 605.26% and foreign currency loss amounted to $ 35.90 million.
This was taken place owing to the unfavourable impact of currency on the foreign transaction
of the entity (Koonce, Leitter & White, 2017).
Horizontal analysis of consolidated balance sheet

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ACCOUNTING FINANCIAL ANALYSIS REPORT
From the above horizontal analysis of revenue statement it can be identified that the
current assets of the entity has been increased by 10.78% for the 6 months ended September
2018 as compared to the 6 months ended September 2017. However, the total assets for the
same period under concern have been significantly increased by 62.23%. The reason behind
increase in total assets was due to increase in intangible assets by 185.58% and increase in
goodwill by 565.75% as compared to 6 months ended for the previous year (Thomas et al.,
2016). If the liabilities are considered it can be identified that the current liabilities of the
company has been increased by 110.22% and the reason of increase was increase in accounts
payable and increase in accrues payroll and payroll related expenses. In case of non-current
liabilities it can be identified that deferred tax liabilities of the company went up by 130.62%
as compared to the previous period. Another important aspect that needs to be mentioned that
for 6 months ended 30th September 2017 the company did not have any ling term debt in its
books (Sridharan, 2015). However, for the 6 months ended 30th September 2018 the

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ACCOUNTING FINANCIAL ANALYSIS REPORT
company’s recorded long term debt was amounted to $ 504.60 million. Hence, it can be
stated that the new debt will increase the leverage risk of the entity. Moreover, the total
liabilities of the entity for the concerned period significantly increased by 164.83% as
compared to the previous period. Reasons behind this significant increase in liabilities were
new borrowing through long term debt, increase in deferred tax liabilities by 130.62% and
increase in other long term liabilities by 157.25% (Maaloul & Zéghal, 2015). If the
shareholder’s equity is considered it can be recognised that retained earnings of the company
has been increased by 15.41% whereas non-controlling interest has been increased to $ 3.60
million in 2018 as compared to $ 0.20 million for the same period in 2017.
Answer 2 (a)
One category of stakeholders is chosen as the shareholders of the entity.
Answer 2 (b)
Information that is specifically is a matter of interest for the shareholders are the
information regarding the information is given regarding net income and diluted values per
share in page no. 3 under the heading Overview of MKHL Second Quarter Fiscal 2019
Results (Capriholdings.com, 2019).
Answer 2 (c)
Shareholders will be interested in that part of the information as the shareholders are
mainly concerned regarding the return they can get from the entity on their invested amount.
Net income and earnings per share indicates the return shareholders are getting on each share
held by them in the company (Businesswire.com, 2018).

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Answer 3 (a)
(i) Yes unaudited balance sheet of Michael Kors Holding Limited and Subsidiaries is
attached with the press release
(ii) Yes, in the title of balance sheet ‘consolidated balance sheet’ word is written as
title.
Answer 3 (b)
(i) Yes income statement of Michael Kors Holding Limited and Subsidiaries is
attached with the press release
(ii) No, the word income statement is not written in the title rather the title is written
as ‘CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS’
(iii) Income statement is recognised as the statement recorded revenues and expenses
of the company for the concerned period (Businesswire.com, 2018).
Answer 3 (c)
No, the financial statements of Michael Kors are not précised to dollar rather it is
précised to millions of dollars. The reason behind that it will not make any difference to a
general reader whether the amount written as $ 200 million is actually $ 199.7 million or $
200.3 million. However, the financial statements are heavily relied on the concept of
materiality (Businesswire.com, 2018).
Answer 4 (a)
Amount of the resources owned by entity that is reported in the financial statement for
the period ended 29th September 2018 amounted to $ 4,107.30 million. It can be told through
looking into the figure of total assets presented in the balance sheet (Capriholdings.com,
2019).

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Answer 4 (b)
Amount of total claim of shareholders against assets of the entity for the period ended
29th September 2018 amounted to $ 2,183.30 million. It can be told through looking into the
figure of total shareholder’s equity presented in the balance sheet (Capriholdings.com, 2019).
Answer 4 (c)
Amount of total claim of creditors against assets of the entity for the period ended 29th
September 2018 amounted to $ 1,924 million. It can be told through looking into the figure of
total liabilities presented in the balance sheet (Capriholdings.com, 2019).
Answer 5
Yes, the company sells on credit to its customers. It can be told through looking into
the current assets section of the balance sheet of the company that reported $ 339.9 million as
receivable, net for period ended 29th September 2018. This receivable represents that the
company sells on credit to its customers (Businesswire.com, 2018).
Answer 6
It can be identified from the press release that the net income of the company has been
reduced to $ 137.6 million in 2nd quarter of the fiscal year 2019 as compared to $ 202.9
million for the previous period. Adjusted net income also dropped to $ 192.5 million in 2nd
quarter of the fiscal year 2019 as compared to $ 204.5 million for the previous period. Hence,
the changing face of the retail has adverse impact on the earning of Michal Kors
(Capriholdings.com, 2019).
Answer 7 (a)
Risks identified in press release of the entity are as follows –

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ACCOUNTING FINANCIAL ANALYSIS REPORT
 Satisfaction of circumstances with regard to consummation of Versace acquisition
 Ability of the entity to successfully integrate the business and achieving the epected
benefits from acquisition of Versace
 Negative impact of announcement regarding proposed acquisition of Versace and
impact on market price of ordinary share of the entity
 Impact of government regulation on Versace’s or entity’s business
 Future, expenses, revenues, capital expenditures, indebtedness, economic
performance, share buybacks, financial conditions, losses, dividend policy and future
prospects (Businesswire.com, 2018).
Answer 7 (b)
One major risk identified under the section impact of Versace acquisition. The
company through one of its announcement confirmed that it will buy all the outstanding
shares of Versace for an amount of $ 2.1 billion and officially the group will be named after
Island of Capri as Capri Holdings Limited. Though it is a prestigious acquisition, it will be
considered as a risky move as the entity is not enough experienced for this sector
(Businesswire.com, 2018). Generally when disruption is considered, it is though that the old
entity will be disappeared and the new one takes over. However, this is not the case for this
acquisition. Through purchasing of Versace for huge $ 2.1 billion, Michael Kor is expending
considerable amount for growing up of the group. Hence, in addition to existing 150 million
Euros that is required to be paid in stock the entity will have to draw from the credit facilities
and new underwriting from bank loans. It will have an unfavourable impact on liquidity
position of the company. Further, though the plan seems promising, it will cause the
operating expenses of Kor to increase (Capriholdings.com, 2019). Moreover, acquisition of
Versace will dilute the entity’s non-GAAP earnings per share for the year ended 31st March
2020. It is expected that the acquisition will be accretive in low single digit for the fiscal year

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ACCOUNTING FINANCIAL ANALYSIS REPORT
ended 2021 and will become accretive in high single digits for the fiscal year ended 2022.
Further, due to tough competition in high-end market for luxury goods, sales growth of
Versace has slowed down. Hence, for increasing the sales level, Kor has to increase its
spending significantly on marketing campaigns as well as new product development for
Versace if it wants to pull the shoppers for this brand and away from the rival brands. Hence,
acquisition of Versace is considered as a major risk for the company at this moment
(Capriholdings.com, 2019).

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ACCOUNTING FINANCIAL ANALYSIS REPORT
Reference
Businesswire.com. (2018). Michael Kors Holdings Limited Announces Second Quarter
Fiscal 2019 Results. Businesswire.com. Retrieved 24 February 2019, from
https://www.businesswire.com/news/home/20181107005295/en/
Capriholdings.com. (2019). Capri Holdings Limited - Overview . Retrieved 24 February
2019, from http://www.capriholdings.com/corporate-overview/default.aspx
Koonce, L., Leitter, Z., & White, B. J. (2017). Linked Financial Statement Presentation.
Maaloul, A., & Zéghal, D. (2015). Financial statement informativeness and intellectual
capital disclosure: An empirical analysis. Journal of Financial Reporting and
Accounting, 13(1), 66-90.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Sridharan, S. A. (2015). Volatility forecasting using financial statement information. The
Accounting Review, 90(5), 2079-2106.
Thomas, R. R., Van Greuning, H., Henry, E., & Michael, A. B. (2016). International financial
statement analysis.