An Analysis and Evaluation of Financial Performance of H & M

An analysis and evaluation of financial performance of H & M
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Executive Summary
The module is about providing understanding of the ways to evaluate the financial
performance of a company. The financial analysis aims at examining the financial position of a
company for determining its stability and sustainability aspects. The assignment is about
evaluating the financial performance of a selected company, that is, Hennes & Mauritz AB
(H&M) by the use of ratio analysis. The ratio analysis is highly important to measure the
operational efficiency, liquidity, stability and profitability of a company in order to provide
relevant financial information to the investors and guide them in decision-making.
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Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Part A: Analysis of Economic Factors and its impact on the business...........................................4
Macro Economic Factors.............................................................................................................4
Micro Economic Factors..............................................................................................................6
Part B: Calculation of Ratios...........................................................................................................6
C. Accounting Ratios & their Importance in Business....................................................................7
I. Return on Capital Employed (ROCE)......................................................................................8
II. Net Profit Margin....................................................................................................................8
III. Current Ratio..........................................................................................................................8
IV. Average Receivable days/ Debtors collection period............................................................9
V. Average Payable days/ Creditors collection period................................................................9
VI. Efficiency Ratio.....................................................................................................................9
Part D. Recommendation.................................................................................................................9
Part E. Conclusion.........................................................................................................................10
References......................................................................................................................................11
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Introduction
There is large impact of the economic factors on the growth and development of
businesses and gaining an understanding of these factors is essential to promote a company’s
growth. The economic factors mainly refer to the goods, services and money. These variables
has a large impact on the financial condition of an economy and thus impact the operations of a
company by influencing the demand of the consumers, value of assets and taxes. The economic
factors influence the businesses by changing the rate of interest, exchange rate, recession,
inflation, taxes and supply and demand pattern. The movement along the curve occurs when
there is fluctuation in the price of the good which causes a subsequent change in the quantity
supplied. The shift in the curve can be caused by the changes in factors such as average income
and preferences that can cause the demand curve to shift to the right side. The report has
presented a discussion regarding the analysis of macro and micro-economic factors and their
impact on the business. This is followed by calculating the key financial ratios of the selected
company, H&M, and carrying out their interpretations for examining the financial performance
of the company for the past three financial years.
Part A: Analysis of Economic Factors and its impact on the business
Macro Economic Factors and impact of these on chosen company performance over three
years
The two most important macro economic factors that impact the clothing retail sector are
Gross Domestic Product (GDP) and In.
(I) GDP: It refers the money value of the goods and services manufactured in the particular
economy (Here is Sweden Economy) during the given year or quarter. It is one of the important
economic factors that help to measure the economic health of the country. GDP critically
impacts every business sector within the economy (Economics stats, 2019). When GDP is strong,
business hires more workers as they can afford to pay more wages and salaries. These results in
higher spending by the customers on goods and services produced within the country. GDP of
Sweden has expanded by 1.7% YoY basis in year September 2019 as compared to 1.0 % in
previous quarter. Average growth rate in GDP of Sweden was 2.7% during last 10 years
(Trading Economics, 2019).
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