Tiffany & Co. Financial Analysis

This assignment requires a detailed analysis of Tiffany & Co.'s financial statements, specifically examining the composition and trends in their stockholder equity. Students need to examine components such as common stock, preferred stock, additional paid-in capital, retained earnings, and accumulated other comprehensive loss. The analysis should highlight key insights into the company's financial health and performance based on these equity metrics.

Accounting for decision
making

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
2.BACKGROUND..........................................................................................................................1
3. FINANCIAL PERFORMANCE ANALYSIS.............................................................................1
3.1 Horizontal analysis...........................................................................................................1
3.2 Trend / Vertical analysis...................................................................................................1
3.3 Ratio analysis....................................................................................................................2
4. QUALITATIVE ANALYSIS....................................................................................................11
5. BUSINESS AND GROWTH STRATEGY..............................................................................12
6. DISADVANTAGES OF RATIO AND TREND ANALYSIS..................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
APPENDIX....................................................................................................................................16
1. Ratio analysis of Tiffany & Co........................................................................................16
2. Horizontal analysis of income statement..........................................................................20
3. Horizontal analysis of balance sheet................................................................................21
4. Vertical analysis of income statement..............................................................................24
5. Vertical analysis of balance sheet.....................................................................................25

1. INTRODUCTION
Financial accounting in relation with management accounting assist in making decisions regarding the allocation of resources
and generating profits. It helps business in maintaining the record of the financial transactions and enables in ascertaining the
profitability and financial position of the business (Williams and Dobelman, 2017). It also analyses the credibility, solvency and
liquidity of the company that leads to an effective decision making about the distribution of the funds in the various investment
channels so that huge funds can be generated. Further the report includes the background and aim of the company and financial ratios
and trend analysis of the organisation. It also describes the growth strategy and the limitations of the ratio and trend analysis.
2.BACKGROUND
The present study is based on Tiffany & co. which is an American company deals in the jewellery, china crystal, watches,
accessories and sterling silver headquartered in New york city. Further, such business is also listed on London Stock exchange with
the motive to attract more funds and investors. It is Well-known for its luxury and speciality in diamonds and operates worldwide
(Liu, and et.al., 2019). Its market itself has the style, taste and unique in terms of its gems and jewellery.
3. FINANCIAL PERFORMANCE ANALYSIS
3.1 Horizontal analysis
Income statement
Refer to appendix 2.
Balance sheet
Refer to appendix 3.
3.2 Trend / Vertical analysis
Income statement
Refer to appendix 4.
1

3.3 Ratio analysis
Profitability ratios
Particulars 2015 2016 2017 2018
GP ratio 59.70% 60.69% 62.23% 62.47%
NP ratio 11.39% 11.30% 11.15% 8.88%
2

Liquidity ratio analysis
Particulars 2015 2016 2017 2018
Current ratio 5.33 4.81 5.65 5.50
Quick ratio 1.74 1.76 1.92 2.10
3

4

% change in revenue
Particular
s 2017 2018
%
ch
an
ge
in
rev
en
ue
Sales
revenue 4001.8 4169.8 4.2
0%
Gearing or debt-equity ratio
Partic
ulars 2015
2016
2017 2018
Gearin
g ratio 0.31 0.27 0.29 0.27
5

Inventory turnover ratio
Particular
s 2015
2016
2017
20
18
Inventory
turnover
ratio 0.73 0.73 0.70
0.
69
6

Earnings per share
Particulars 2015 2016 2017 2018
Earnings per share
3.83 3.75
2.96 3.19
7

Dividend yield ratio
Particulars 2015 2016 2017 2018
DYR
0.44 0.49 0.47 0.47
8

Dividend cover ratio
Particulars 2015 2016 2017 2018
DCR
2.53 2.28 2.04 1.53
9

Return on capital employed
Particulars 2015 2016 2017 2018
ROCE
19.71% 17.51% 16.72% 16.75%
10

4. QUALITATIVE ANALYSIS
From the above analysis it is interpreted that horizontal analysis shows the negative trend in earnings as the operating expenses
increases from 1769.1 to 1810.2 and the income tax increases from 230.9 to 370.4 which leads the drop in the profits (Easton and
Sommers, 2018). The vertical analysis reflects the positive earnings that is equals to 9% as the net sales is taken as the base.
In ratio analysis the profitability ratio includes the gross profit ratio that indicates the inter-relation between the sales and the
gross profit which shows the increasing trend resulted as from 62.23% to 62.47% which is a positive sign and states that the profits of
the Tiffany & co increases. On the other hand the net profit ratio decreases from 11.15% to 8.88% which reflects that the indirect cost
of the organisation has increased from the past year. The liquidity ratio involves the current ratio that shows the relationship between
the current assets and current liabilities. Outcome of ratio analysis presents fluctuated trend takes place in the current ratio of firm.
Moreover, short term debts of the Tiffany & Co. increases and the current assets are decreasing that leads to lower cash liquidity
11

(Robinson, and et.al., 2015). The quick ratio increases from 1.92 to 2.10 which reflects that the corporate has the ability to meet its
obligations and can quickly convert its receivables into cash.
The % change in revenue resulted as 4.2% as the sales increases from the past year that is from 4001.1 to 4169.8 which indicates that
the turnover of the company is increasing so the company can earn more profits.
The debt-equity ratio of the Tiffany & Co. decreased from 0.31 to 0.27, at the end of accounting year 2018, which means that
the enterprise has taken more risk and the borrowing of the firm get increases. In other words, it can be stated that business unit
focused on meeting financial requirement through equity rather than debt. Hence, at the time of raising finance Tiffany should keep in
mind ideal debt-equity ratio such as .5:1.
Inventory turnover ratio indicates the relationship between the cost of goods sold and the average inventory which as per the
analysis is decreased from 0.79 to 0.69 which is counted as the minute difference from the past year and the company has not attained
the ideal ratio which is equals to 4 to 6 that means the sales and marketing of the Tiffany & co. is not strong and effective.
Earnings per share means the profits of the company in relation with the equity shares so as the earning per share of the enterprise
is increasing from 2.96 to 3.19 which indicates that the organisation has more funds that can be distributed as dividend to its
shareholders or can reinvest the funds for expansion projects.
5. BUSINESS AND GROWTH STRATEGY
 Global expansion- this company has a worldwide distribution network and looking for setting up of additional stores on the e-
commerce websites and in the new market which enables the company in enhancing its brand value.
 Product development- Tiffany & co. focuses on introducing the new designs and creating something new in existing designs
to develop the product in the market and to increase the sales in the present market (Akhtar and et.al., 2018).
 Customer awareness- by emphasizing on effective marketing and investing in public campaigns the organisation increases
the awareness of its brand and product in the minds of the new and existing customers so that large customer base can be
achieved that leads to higher profitability and growth.
12

Annual report of the firm clearly presents that in the accounting year 2016, significant challenges were faced by Tiffany & co.
Hence, referring the performance of such year significant changes were done by management team in the strategic as well as
policy framework pertaining to sales, earnings growth as well as long term shareholder’s value. For the purpose of growth,
company emphasized on increasing the level of new product, innovation, marketing effectiveness etc. In the year of 2017 & 2018,
se4veral magnificent jewellery was designed and introduced related to silver, platinum, diamond etc. Further, in order to manage
capital and cost company took initiatives for strengthening the level of both business process & operations. Along with this, to
strengthen business performance in financial terms focus is placed by the company on supply chain excellence, system
enhancement as well as adoption of global procurement strategy. Hence, such multi-dimensional strategies of Tiffany created
opportunity for increasing the level of sales, productivity and profitability.
6. DISADVANTAGES OF RATIO AND TREND ANALYSIS
 Quantitative analysis- ratios are the tools that reflects only the quantitative factor while the qualitative factors are ignored that
acts as the big limitation as the qualitative elements cannot be assessed (Zietlow, and et.al., 2018). For example- higher
current ratio does not depict string liquidity when a huge inventory majorly consist of obsolete items under the current asset.
 Window dressing- it means when the company's financial statements shows the better position than actually it is.
Manipulation in recording the data leads to the window dressing and due to that the ratios evaluates from such statements
cannot be used for assessing the company's financial position (Young and et.al., 2018). For example- expense for revenue
treated as expenditure for capital, depreciation is charged at lower rate.
 Historical data- ratios are computed on the basis of historical values and not on the current condition which creates problem
for the organisation in future prediction.
13

 Non-comparable- As different company uses different policies for accounting in relation to the method of charging
depreciation and valuation method of inventory that creates non-comparability of the data and ratios of accounting of two
different firms.
 Difficult to select the base year- for making trend analysis it is difficult to select the base year (Adamaуtis, and et.al., 2019).
 Generally the normal year is considered as the base year for attaining the trend else the analysis of trend will be resulted as no
value.
 Consistency- when the business trends are continuously changing then it gets difficult for the company to follow the same
principles and guidelines for accounting.
 Useless at the time of inflation- trend analysis becomes meaningless at the time of changes in price level as the data taken as
a trend for making comparison will be resulted as misleading because the changes in the prices are not considered.
CONCLUSION
From the above report it can be concluded that the financial position of the company is stable and sound. For growing in the
challenging and changing environment Tiffany & Co should take proper growth expansion strategy like diversification, exploring new
market and using new technology so that the company could enhance its goodwill in the global market and can grab different
investment opportunity which enables the company in growing consistently across the world and can achieve competitive edge over
its rivalry.
14

REFERENCES
Adamaуtis, L. and et.al., 2019. Analysis of interrelation of financial results and financial condition of the company. In MATEC Web
of Conferences (Vol. 265, p. 07019). EDP Sciences.
Akhtar, M. and et.al., 2018. True and Fair View of Financial Reporting Practices: Accountants’ Perspective. Journal of Islamic
Business and Management. 8.pp.301-319.
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.
Liu, Q. and et.al., 2019. Integrated modeling and optimization of material flow and financial flow of supply chain network
considering financial ratios. Numerical Algebra, Control & Optimization. 9(2). pp.113-132.
Robinson, T.R. and et.al., 2015. International financial statement analysis. John Wiley & Sons.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book Chapters. pp.109-169.
Young, S.D. and et.al., 2018. Corporate financial reporting and analysis: a global perspective. Wiley.
Zietlow, J. and et.al., 2018. Financial management for nonprofit organizations: policies and practices. John Wiley & Sons.
Online
Annual Report of Tiffany & co. 2018. [Online]. Available through:
<http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_TIF_2017.pdf>
Ratio Analysis. 2019. [Online]. Available through: <http://www.yourarticlelibrary.com/accounting/ratio-analysis/ratio-analysis-
meaning-advantages-and-limitations-accounting/65204>
Tiffany & Co. 2019. [Online]. Available through: <https://ca.finance.yahoo.com/quote/0LFD.L/cash-flow?p=0LFD.L>
15

APPENDIX
1. Ratio analysis of Tiffany & Co
Particulars Formula 2015 2016
2017 (in
000)
2018 (in
000)
Gross profit 2537200 2491300 2490.3 2604.7
Net profit 484200 463900 446.1 370.1
Sales 4249900 4104900 4001.8 4169.8
Gross profit
ratio
gross
profit/sales*
100 59.70% 60.69% 62.23% 62.47%
Net profit
ratio
net
profit/sales*
100 11.39% 11.30% 11.15% 8.88%
current
assets 3508800 3508400 3,573.60 3,983.30
Stock 2362100 2225000 2,157.60 2,253.50
Prepaid
expenses 220 190.4 203.4 207.4
Quick assets 1146480 1283210 1,212.60 1,522.40
16

current
liabilities 658000 729900 632.8
724.8
(Tiffany &
Co, 2019)
Current ratio
Current
assets/curre
nt liabilities 5.33 4.81 5.65 5.5
Quick ratio
Quick
assets/Curre
nt liabilities 1.74 1.76 1.92 2.1
Long term
debts 882500 790000 878.4 882.9
Shareholders
funds 2835100 2911400 3,028.40 3,248.20
Debt-equity
ratio Debt/Equity 0.31 0.27 0.29 0.27
COGS 1712700 1613600 1,511.50 1,565.10
Average
inventory 2362100 2225000 2,157.60 2,253.50
Inventory COGS/ 0.73 0.73 0.7 0.69
17

turnover
ratio
average
inventory
Earnings per
share ratio
Net income
– preferred
dividend/we
ighted
average
outstanding
shares 3.83 3.75 2.96 3.19
Annual
dividend per
share 1.58 1.75 1.95 1.75
price per
share 3.59 3.55 4.13 3.75
Dividend
yield ratio
annual
dividend per
share/price
per share 0.44 0.49 0.47 0.47
18

Net profit 484200 463900 446100 370100
Dividend
declared 191200 203400 218800 242600
Dividend
cover ratio
Net
profit/divide
nd declared 2.53 2.28 2.04 1.53
operating
profit 891400 768900 746600 794500
total assets 5180600 5121600 5097600 5468100
current
liability 658000 729900 632800 724800
capital
employed 4522600 4391700 4464800 4743300
Return on
capital
employed
ratio
operating
profit/capita
l
employed*1
00 19.71% 17.51% 16.72% 16.75%
19

2. Horizontal analysis of income statement
2015 2016 % change in
2016 2017
%
change
in
2017
2018
%
change
in 2018
Net sales 4,249.90 4,104.90 -3.41% 4,001.80 -2.51% 4,169.80 4.20%
Cost of sales 1,613.60 1,712.70 6.14% 1,511.50 -
11.75% 1,565.10 3.55%
Gross profit 2,491.30 2,537.20 1.84% 2,490.30 -1.85% 2,604.70 4.59%
Selling, general and
administrative
expenses 1,731.20 1,645.80
-4.93% 1,769.10 7.49% 1,810.20 2.32%
Earnings from
operations 760.1 891.4 17.27% 721.2 -
19.09% 794.5 10.16%
Interest expense and
financing costs 49 62.9 28.37% 46 -
26.87% 42 -8.70%
Other (income)
expense, net 1.2 -2.8 -333.33% -1.4 -
50.00% -8 471.43%
Earnings from
operations before
income taxes 709.9 737.5
3.89% 676.6 -8.26% 760.5 12.40%
Provision for income
taxes 246 253.3 2.97% 230.5 -9.00% 390.4 69.37%
Net earnings 463.9 484.2 4.38% 446.1 -7.87% 370.1 -17.04%
3. Horizontal analysis of balance sheet
Particulars 2015 2016 % change in
2016 2017
%
change
in 2017
2018
%
change
in 2018
20

ASSETS
Current assets
Cash and cash equivalents 730 843.6 15.56% 928 10.00% 970.7 4.60%
Short-term investments 1.5 43 2766.67% 57.8 34.42% 320.5 454.50
%
Accounts receivable, less
allowances of $17.2 and $11.5 195.2 206.4 5.74%
226.8 9.88% 231.2 1.90%
Inventories, net 2,362.10 2,225.00 -5.80%
2,157.6
0 -3.03% 2,253.5
0 4.40%
Prepaid expenses and other
current assets 220 190.4 -13.45% 203.4 6.83% 207.4 2.00%
Total current assets 3,508.80 3,508.40 -0.01%
3,573.6
0 1.86% 3,983.3
0 11.50%
#DIV/0!
Property, plant and equipment,
net 899.5 935.8 4.04% 931.8 -0.43% 990.5 6.30%
Deferred income taxes 426.1 382.8 -10.16% 301.8 -21.16% 188.2 -37.60%
Other assets, net 346.2 294.6 -14.90% 290.4 -1.43% 306.1 5.40%
5,180.60 5,121.60 -1.14%
5,097.6
0 -0.47% 5,468.1
0 7.30%
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings 234 221.6 -5.30% 228.7 3.20% 120.6 -47.30%
21

Current portion of long-term
debt
0
84.2
-
100.00
%
Accounts payable and accrued
liabilities 318 329.1 3.49% 312.8 -4.95% 437.4 39.80%
Income taxes payable 39.9 27.1 -32.08% 22.1 -18.45% 89.4 304.50
%
Merchandise credits and
deferred revenue 66.1 67.9 2.72% 69.2 1.91% 77.4 11.80%
Total current liabilities 658 729.9 10.93% 632.8 -13.30% 724.8 14.50%
Long-term debt 882.5 790 -10.48% 878.4 11.19% 882.9 0.50%
Pension/postretirement benefit
obligations 524.2 428.1 -18.33% 318.6 -25.58% 287.4 -9.80%
Deferred gains on sale-
leasebacks 64.5 55.1 -14.57% 45.9 -16.70% 40.5 -11.80%
Other long-term liabilities 200.7 189 -5.83% 193.5 2.38% 284.3 46.90%
Commitments and contingencies
Stockholders' equity: Preferred
Stock, $0.01
Preferred Stock, $0.01 par
value; authorized 2.0 shares,
none issued and outstanding
22

Common Stock, $0.01 par
value; authorized 240.0 shares,
issued and outstanding 124.5
and 124.5
1.3
1.3
0.00%
1.2 -7.69% 1.2 0.00%
Additional paid-in capital 1,173.60 1,175.70 0.18%
1,190.2
0 1.23% 1,256.0
0 5.50%
Retained earnings 1,950.70 2,012.50 3.17%
2,078.3
0 3.27% 2,114.2
0 1.70%
Accumulated other
comprehensive loss, net of tax -290.5 -278.1 -4.27%
-256.2 -7.87% -138 -46.10%
Total Tiffany & Co.
stockholders' equity 2,835.10 2,911.40 2.69%
3,013.5
0 3.51% 3,233.4
0 7.30%
Non-controlling interests 15.6 18.1 16.03% 14.9 -17.68% 14.8 -0.70%
Total stockholders' equity 2,850.70 2,929.50 2.76%
3,028.4
0 3.38% 3,248.2
0 7.30%
5,180.60 5,121.60 -1.14%
5,097.6
0 -0.47% 5,468.1
0 7.30%
4. Vertical analysis of income statement
2015 % of
2015 2016 % of
2016 2017 % of
2017 2018 % of
2018
Net sales 4,249.90 100.00% 4,104.90 100.00% 4,001.80 100.00% 4,169.80 100.00%
23

Cost of sales 1,613.60 37.97% 1,712.70 41.72% 1,511.50 37.77% 1,565.10 37.53%
Gross profit 2,491.30 58.62% 2,537.20 61.81% 2,490.30 62.23% 2,604.70 62.47%
Selling,
general and
administrative
expenses
1,731.20 40.74% 1,645.80 40.09%
1,769.10 44.21% 1,810.20
43.41%
Earnings
from
operations 760.1 17.89% 891.4 21.72%
721.2 18.02% 794.5
19.05%
Interest
expense and
financing
costs 49 1.15% 62.9 1.53%
46 1.15% 42
1.01%
Other
(income)
expense, net 1.2 0.03% -2.8 -0.07%
-1.4 -0.03% -8
-0.19%
Earnings
from
operations
before
income taxes
709.9 16.70% 737.5 17.97%
676.6 16.91% 760.5
18.24%
24

Provision for
income taxes
246 5.79% 253.3 6.17%
230.5 5.76% 390.4
9.36%
Net earnings 463.9 10.92% 484.2 11.80% 446.1 11.15% 370.1 8.88%
5. Vertical analysis of balance sheet
Particulars 2015 % of
2015 2016 % of
2016 2017 % of
2017 2018 % of
2018
ASSETS
Current assets
Cash and cash
equivalents 730 14.09% 843.6 16.47% 928 18.20% 970.7
17.8%
Short-term
investments 1.5 0.03% 43 0.84% 57.8 1.13% 320.5
5.9%
25

Accounts receivable,
less allowances of
$17.2 and $11.5
195.2 3.77% 206.4 4.03% 226.8 4.45% 231.2
4.2%
Inventories, net 2,362.10 45.60% 2,225.00 43.44% 2,157.60 42.33% 2,253.50 41.2%
Prepaid expenses and
other current assets 220 4.25% 190.4 3.72% 203.4 3.99% 207.4
3.8%
Total current assets 3,508.80 67.73% 3,508.40 68.50% 3,573.60 70.10% 3,983.30
72.8%
0.00% 0.00% 0.00% 0.0%
Property, plant and
equipment, net 899.5 17.36% 935.8 18.27% 931.8 18.28% 990.5
18.1%
Deferred income taxes 426.1 8.22% 382.8 7.47% 301.8 5.92% 188.2
3.4%
Other assets, net 346.2 6.68% 294.6 5.75% 290.4 5.70% 306.1
5.6%
26

5,180.60 100.00% 5,121.60 100.00% 5,097.60 100.00% 5,468.10 100.0%
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings 234 4.52% 221.6 4.33% 228.7 4.49% 120.6
2.21%
Current portion of
long-term debt 0 0.00% 84.2 1.64% 0.00% 0.00%
Accounts payable and
accrued liabilities 318 6.14% 329.1 6.43% 312.8 6.14% 437.4
8.00%
Income taxes payable 39.9 0.77% 27.1 0.53% 22.1 0.43% 89.4
1.63%
27

Merchandise credits
and deferred revenue 66.1 1.28% 67.9 1.33% 69.2 1.36% 77.4
1.42%
Total current liabilities 658 12.70% 729.9 14.25% 632.8 12.41% 724.8
13.26%
0.00% 0.00% 0.00% 0.00%
Long-term debt 882.5 17.03% 790 15.42% 878.4 17.23% 882.9
16.15%
Pension/postretirement
benefit obligations 524.2 10.12% 428.1 8.36% 318.6 6.25% 287.4
5.26%
Deferred gains on
sale-leasebacks 64.5 1.25% 55.1 1.08% 45.9 0.90% 40.5
0.74%
Other long-term
liabilities 200.7 3.87% 189 3.69% 193.5 3.80% 284.3
5.20%
0.00% 0.00% 0.00% 0.00%
28

Commitments and
contingencies 0.00% 0.00% 0.00%
0.00%
Stockholders' equity:
Preferred Stock, $0.01 0.00% 0.00% 0.00%
0.00%
Preferred Stock, $0.01
par value; authorized
2.0 shares, none issued
and outstanding
0.00% 0.00% 0.00%
0.00%
0.00% 0.00% 0.00% 0.00%
29

Common Stock, $0.01
par value; authorized
240.0 shares, issued
and outstanding 124.5
and 124.5
1.3 0.03% 1.3 0.03% 1.2 0.02% 1.2
0.02%
Additional paid-in
capital 1,173.60 22.65% 1,175.70 22.96% 1,190.20 23.35% 1,256.00
22.97%
Retained earnings 1,950.70 37.65% 2,012.50 39.29% 2,078.30 40.77% 2,114.20 38.66%
Accumulated other
comprehensive loss,
net of tax
-290.5 -5.61% -278.1 -5.43% -256.2 -5.03% -138
-2.52%
30