Analysis of Financial Performance

This project analyzes the financial planning of a company, including liquidity, profitability, efficiency ratios, working capital management, capital structure, and stock market performance.

Running head: ANALYSIS OF FINANCIAL PERFORMANCE
ANALYSIS OF FINANCIAL PERFORMANCE
Name of the Student
Name of the University
Author Note

1ANALYSIS OF FINANCIAL PERFORMANCE
Executive Summary
The purpose of this project is to analyse the financial planning of a company. The report
clearly explains the various tools of the financial planning and discusses why financial
planning is required. A clothing company has been selected in this report, it’s competitive,
industrial, and financial analysis has been done. The various liquidity, profitability and
efficiency ratios has been calculated for the Ted Baker Company. The working capital ratios
has also been calculated and the capital structure and the stock market performance of the
company has been analysed. The report is concluded by clearly discussing about the financial
position of the company that is by explaining the liquidity, profitability and the solvency
position of the company.

2ANALYSIS OF FINANCIAL PERFORMANCE
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Competitor Analysis...............................................................................................................3
Industry Analysis...................................................................................................................4
Financial Analysis..................................................................................................................4
Ratio analysis.....................................................................................................................5
Working capital management............................................................................................9
Capital structure...............................................................................................................10
Stock performance analysis..............................................................................................11
Conclusion................................................................................................................................12
References................................................................................................................................14
Appendix..................................................................................................................................17

3ANALYSIS OF FINANCIAL PERFORMANCE
Introduction
Financial planning is a very broad term and includes several activities starting form assessing
the business environment to identifying the risks and eliminating them (Baker and Ricciardi
2014). It aims understanding the financial as well as the market position of the organisation
and taking decisions accordingly. The basic objective of financial planning is to determine
the capital requirement or the capital structure of the companies. It includes setting up of
financial policies regarding credit control, cash control, lending and borrowings (Morris and
Daley 2017). This involves determination of balance sheets, calculating the financial stability
by calculation of different types of ratios, determining the working capital management
structure, the capital structure and the companies’ performance in the stock market. The basic
objective of financial planning is to determine the capital requirement or the capital structure
of the companies. It includes setting up of financial policies regarding credit control, cash
control, lending and borrowings. This planning helps in the optimum utilisation of the funds
and the available resources to reach the company objectives very smoothly (Morris and Daley
2017). The financial planning involves determination of balance sheets, calculating the
financial stability by calculation of different types of ratios, determining the working capital
management structure, the capital structure and the companies’ performance in the stock
market.
Discussion
In the given report financial analysis of Ted Baker has been done. Ted baker is a UK
based company, which specialises in luxury clothing. The company was founded by Ray
Kelvin in the year 1988. The company originated at Glasgow. Ted Baker has a diversified
clothing product that includes clothes for men, women and kids. It has several standalone
streets in the UK and the business operates in many other areas like the United States,

4ANALYSIS OF FINANCIAL PERFORMANCE
Australia, South Africa, Asia, Canada as well as the Middle East. Ted Baker divides its
clothing segment into two sectors that is the middle class and the working class. It targets
people of age between 25 to 45 years and in some areas the ages may increase up to 50 years
(Ted Baker 2019).
Competitor Analysis
In Ted Baker’s case, any UK based companies offering luxury clothing as well as
similar outlets in other countries where the company is operating are its direct competitors.
American Eagle Outfitters, Paul Smith ME+EM, Dorothy Perkins, Burberry, Golden Goose
Deluxe Brand and Oliver Spencer are more or less the direct competitors of Ted Baker.
Ted baker is a clothing brand dealing in luxury products. There are several other
affordable brands that can act as an indirect competitor of the company. Companies like
H&M and Top-man provide quality clothing at reasonable prices and thus this indirect
competitors attracts a lot of customers from Ted Baker.
Industry Analysis
Ted Baker has positioned itself as “No ordinary design label” that is as a luxury
clothing brand. It has an integrated system of marketing, advertising and collaborating. It
markets the brand by posting several colourful contents and using the technique of web
analytics that helps them in analysing the customer demands in a better manner and thereafter
providing a better service. Word of mouth and street marketing is the key promotional
activity carried by the company. The company has also tried collaborating with famous and
eminent designers and brands. It has also associated itself with several films that has helped
the company reach the marketing success.

5ANALYSIS OF FINANCIAL PERFORMANCE
Financial Analysis
In order to analyse the financial position of the company and how the company does
its planning regarding the finances, several ratios are being calculated and the capital
structure has also been determined (Easton and Sommers 2018). The stock performance of
the company has also been analysed. The ratio analysis has been done to measure the
financial stability of the company.
Ratio analysis
Ratio analysis refers to the analysis of financial statement that helps the firms in
understanding the financial position of the firm with respect to its competitors. It measures
the firm’s financial performance in several areas (Babalola and Abiola 2013). It helps in
analysing the risks, solvency, operating performance and growth opportunities of the
company. The ratio analysis of Ted baker has been done and is as follows:
Liquidity ratio of a company determines the ability of the company to pay of its debt.
It reflects how fast and smooth the company can pay of its debt (Van Den End and Kruidhof
2013).
2018 2017 2016 2015 2014
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Liquidity Ratio
Axis Title

6ANALYSIS OF FINANCIAL PERFORMANCE
Current ratio is the ratio of the current assets of the company to the current liabilities.
The ideal current ratio of the company is usually 1.5 to 2 (Beatty and Liao 2014). It measures
the solvency of the company. The current ratio of the company is more than 1.5 as seen every
year. This indicates that Ted Baker is having enough short term assets that will help the
company pay off its debt very easily. The current ratio in the year 2014 was less than the
other years. The ratio has decreased in the years 2017 and 2018 having the value of 1.59 and
1.52 respectively. This means that the company should have a check so that the ratio does not
fall below 1.5 (Appendix 1).
The quick ratio refers to the company’s ability to meet its short term obligations with
the most liquid assets that is available with them (Katchova and Enlow 2013). It refers to
those assets that can be used instantly to meet the debt obligations. Quick ratio is calculated
by dividing the summation of the cash balance and the receivables of the company with the
current liabilities. The expected quick ratio for any company is 1. If the quick ratio is below
1, then it means the company does not have proper instant resource to pay off its short term
liabilities. The quick ratio has kept on falling without much improvement since the year 2014
in case of Ted baker. This means Ted Baker should keep enough cash balance or must have
enough receivables to maintain its liquidity position (Appendix 1).
Profitability ratio measures the capability of the business to generate enough earnings
in relation to its revenues and costs (Williams and Dobelman 2017). The higher the
profitability of the firm the better is the performance of that firm (Appendix 1). The company
is trying to expand its business and access new areas for its distribution. This is acting as a
threat as the cost of expansion is increasing and the increased accessibility can reduce the
value of the company as well.

7ANALYSIS OF FINANCIAL PERFORMANCE
2018 2017 2016 2015 2014
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Profitability Ratio
Axis Title
The gross profit margin of the company is calculated by dividing the gross profit with
the sales value of the company (Karadag 2015). All the companies ideally prefers the gross
margin to be more than 50%. The gross profit of the company is above the ideal level but
there is not much increasing trends as the values shown (Appendix 1). It has been noticed in
this case that although the sales has increased over the five years, yet the costs have also
increased at a higher rate than that of the sales revenue. The same affected the gross profit of
the company, which initially decreased from 61.65% to 59.85% in the year 2016, but then it
has shown an increasing trend which is just a minimum amount.
Net profit refers to the remaining profit after the deduction of the administrative
expenditure, the cost of production and the financing costs. The net profit percentage is
calculated by dividing the net profit with the sales of the company (Khadafi, Heikal and
Ummah 2014). It helps the company in judging its performance over times and helps in
comparing its competitive position with respect to its competitors. A 20% net profit margin is
referred to be as a good indicator. The company in this case has its net profit margin below
20%, which means that the company is underperforming and is not properly able to handle its
working capital. The net profit margin was slowly increasing in the year 2015 and 2016 but it

8ANALYSIS OF FINANCIAL PERFORMANCE
again fell in the year 2017. The company however couldn’t perform enough to increase its
margin to the ideal level.
The return on capital employed determines the profitability of the business
organisation. It helps in measuring the efficiency by which the capital is used. It is calculated
with the help of the formula Net Profit before tax/Capital Employed. The higher the return
the higher is the profitability. The company’s ROCE has decreased because the growth rate in
the net operating profit is lesser than the growth in the capital. The ROCE in the year 2014
was 34.73% but it fell down to 22.91% in the year 2017. The company has tried to perform
better in the year 2018 by reducing its operating cost in this year (Appendix 1).
The overall efficiency ratio measures the stability of the financials of the company. It
measures how efficiently the company uses its assets and the liabilities.
The inventory turnover ratio refers to how efficiently the company is using its
inventory (Baños-Caballero, García-Teruel and Martínez-Solano 2014). It is calculated by
dividing the cost of goods sold with the average inventory. The average inventory can be
calculated by dividing the summation of the opening and the closing inventory with 2
(Appendix 1). It measures how many times an inventory is sold in a given period. The higher
the inventory ratio the better it is for the company. The inventory ratio must be at least 4
times but Ted Baker’s inventory ratio has always remained below 4. It was 1.53 times in the
year 2014 but over the time the value has kept on reducing and it is 1.23 in the year 2018. If
we go through the number of days the inventories are taking to turn off, it can be analysed
that the inventory turn days has also increased over the years. It has increased from 216 days
in the year 2014 to 270 days in the year 2018.this means that the company is taking more
time to sell the inventories in hand (Appendix 1).

9ANALYSIS OF FINANCIAL PERFORMANCE
The accounts receivable turnover ratio refers to the capability of the firm to provide
its customer the required credit facilities and its ability to collect the funds relating to the
same (Kieschnick, Laplante and Moussawi 2013). It can be calculated by dividing the sales
with the accounts receivable. A high receivable turnover ratio indicates that the company is
efficient in collecting the revenues and vice versa. The receivable turn days refers how
quickly the company is collecting its debts. Ideally the faster the company collects the
company the better it is for the company. In this case the company is able to collect its
receivable in around 30days and hence it is performing good in terms of collecting the
amount (Appendix 1).
Accounts payable ratio in terms of days helps in the measurement of the number of
days the company is taking to pay its creditors (Michalski 2013). It is calculated by dividing
360 with the average accounts payable turnover. The lower the turnover day the better it is
for the company. In this case, the company’s payment day has kept on increasing from 58
days in the year 2014 to 114 days in 2018 although it tried to reduce the payment period in
the year 2015 and 2016. Therefore, the company must take proper financial steps in order to
stabilise its liquidity position as well as the profitability position (Appendix 1).
Working capital management
Working capital management refers to the companies’ managerial strategies. The
main purpose of the working capital management is to ensure that the company maintains
enough cash balance to meets its daily obligations (Mathuva 2015). Working capital refers to
the difference between the current assets and the current liabilities of the company. A
working capital ratio of 1.2 to 2.0 is usually desirable by every company. The value of the
working capital has increased significantly, which means the company is maintaining enough
current assets or liquid cash to meet its regular requirements. The initial working capital was

10ANALYSIS OF FINANCIAL PERFORMANCE
£22, 843 only whereas it has increased significantly to £91, 852. There is an average increase
of around £20, 000 approximately.
2018
2017
2016
2015
2014
0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000
Working Capital
Capital structure
Capital structure of a firm refers to the firms, ability to grow by utilising different
fund in different manner. It refers to how the company is financing itself by utilising the
various sources of funds (Robb and Robinson 2014). A company can use own funds as well
as loaned funds. The company’s capital might consist of equity shares, preference shares,
debentures and long term loans. In case of Ted Baker, it has been seen that the company has
been using long term loans in the year 2016, 2017 and 2018. The capital gearing ratio and the
dividend coverage ratio has been calculated. The company has low capital gearing ratio
because it has got high common stock holder’s fund and low fixed bearing funds. It means
that the company has low debts and high equity. It has been seen that the company is feasible
in terms of debts as it does not hold huge amount of long term funds.
The dividend coverage ratio determines how many times the company can pay
dividend to its members. The company’s dividend policy is more or less stable and the ratio

11ANALYSIS OF FINANCIAL PERFORMANCE
is also stable. The dividend coverage is approximately 2 times in every case as seen in the
analysis.
2018 2017 2016 2015 2014
0
1
2
3
4
5
6
Capital Structure Ratios
Axis Title
Stock performance analysis
Ted Bakers stock performance has fallen over the time. The shares have fallen down
by 43%. It has fallen around 7.9% in the FTSE 250 (Market Screener 2019). The share prices
have declined over the years. If a proper analysis of the historical stock prices are done, it can
be seen that the company has been underperforming in terms of the stock price in the

12ANALYSIS OF FINANCIAL PERFORMANCE
previous few years. It tried to increase its market position but now the share price have again
fallen.
The earning per share and the dividend per share has been calculated. The earning per
share is an important indicator of determining the share price. It also helps in determining the
price to earnings ratio of the company. The earning per share of the company has increased
considerably because of the increase in the profit after tax is more than that of the increase in
the number of shares. The little profit that is increasing is being distributed among more or
less the existing shareholders only because of which per share earnings are increasing. The
earning per share in the year 2014 was £0.66 only and it has increased to at £1.18 in the year
2018.
The dividend per share shows the value of the dividend received from each shares
being hold. The profit has more or less increased and therefore the dividends being declared
also increased but it has been already seen that the number of shares have not increased
considerably. The dividend per share has therefore also increased over the year. It has
increased from £0.28 in the year 2014 to £0.55 in the year 2018. The growing DPS states that
the earnings growth of the company can be maintained. The price earning ratio however has
decreased over the time which is not a good indicator.

13ANALYSIS OF FINANCIAL PERFORMANCE
2018 2017 2016 2015 2014
0
5
10
15
20
25
30
35
Stock Performance Rati o
Axis Title
Conclusion
The financial analysis of the company Ted Baker was done by including the financial
statement of the company for the year 2013-2018 by taking various financial data and reports
into consideration. In terms of profitability evaluated above the company, stage has been
consistently stable with the growing revenue of the company and the cost associated with the
same. The financial position of the company has been stable despite of the volatile business
conditions and industry factors taken into consideration for the purpose of analysis. From an
investors perspective the stock could be considered for buying in the long-term with
improving financial conditions and the efficiency of the management in handling the
resources of the company.

14ANALYSIS OF FINANCIAL PERFORMANCE
References
Baker, H.K. and Ricciardi, V., 2014. Investor behavior: The psychology of financial planning
and investing. John Wiley & Sons.
Morris, J.R. and Daley, J.P., 2017. Introduction to financial models for management and
planning. Chapman and Hall/CRC.
Ted Baker (2019). About Ted | Ted Baker UK. [online] Tedbaker.com. Available at:
https://www.tedbaker.com/uk/about-ted [Accessed 15 Mar. 2019].
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.
Babalola, Y.A. and Abiola, F.R., 2013. Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), pp.132-137.
Van Den End, J.W. and Kruidhof, M., 2013. Modelling the liquidity ratio as macroprudential
instrument. Journal of Banking Regulation, 14(2), pp.91-106.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Katchova, A.L. and Enlow, S.J., 2013. Financial performance of publicly-traded
agribusinesses. Agricultural Finance Review, 73(1), pp.58-73.
Baghai, R.P., Servaes, H. and Tamayo, A., 2014. Have rating agencies become more
conservative? Implications for capital structure and debt pricing. The Journal of Finance,
69(5), pp.1961-2005.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific
Book Chapters, pp.109-169.

15ANALYSIS OF FINANCIAL PERFORMANCE
Khadafi, M., Heikal, M. and Ummah, A., 2014. Influence analysis of return on assets (ROA),
return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current
ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange.
International Journal of Academic Research in Business and Social Sciences, 4(12).
Mathuva, D., 2015. The Influence of working capital management components on corporate
profitability.
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital
management, corporate performance, and financial constraints. Journal of Business Research,
67(3), pp.332-338.
Kieschnick, R., Laplante, M. and Moussawi, R., 2013. Working capital management and
shareholders’ wealth. Review of Finance, 17(5), pp.1827-1852.
Michalski, G., 2013. Portfolio management approach in trade credit decision making. arXiv
preprint arXiv:1301.3823.
Robb, A.M. and Robinson, D.T., 2014. The capital structure decisions of new firms. The
Review of Financial Studies, 27(1), pp.153-179.
Zeitun, R. and Tian, G.G., 2014. Capital structure and corporate performance: evidence from
Jordan. Australasian Accounting Business & Finance Journal, Forthcoming.
Ted Baker (2019). 2018. [online] Tedbakerplc.com. Available at:
http://www.tedbakerplc.com/investor-relations/results-and-reports/2018 [Accessed 15 Mar.
2019].
Market Screener (2019). TED BAKER PLC : TED Stock Price | GB0001048619 |
MarketScreener. [online] Marketscreener.com. Available at:
https://www.marketscreener.com/TED-BAKER-PLC-4001696/ [Accessed 15 Mar. 2019].

16ANALYSIS OF FINANCIAL PERFORMANCE
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises:
A strategic management approach. EMAJ: Emerging Markets Journal, 5(1), pp.26-40.

17ANALYSIS OF FINANCIAL PERFORMANCE
Appendix
1) Ratio Analysis
1 Current
Current Assets 269,356.00£ 248,779.00£ 191,334.00£ 159,593.00£ 112,389.00£
Current Liabilities 176,841.00£ 156,927.00£ 109,191.00£ 91,088.00£ 89,546.00£
2 Quick
Cash + Accts. Rec. 80,985.00£ 80,652.00£ 62,598.00£ 44,253.00£ 63,314.00£
Current Liabilities 176,841.00£ 156,927.00£ 109,191.00£ 91,088.00£ 89,546.00£
3 Gross Margin 2018 2017 2016 2015 2014
Gross Profit 360,805.00£ 323,729.00£ 273,022.00£ 235,205.00£ 198,470.00£
Sales 591,670.00£ 530,986.00£ 456,169.00£ 387,564.00£ 321,921.00£
4 Net Margin
Net Profit Before Tax 68,789.00£ 61,271.00£ 58,664.00£ 48,771.00£ 38,923.00£
Sales 591,670.00£ 530,986.00£ 456,169.00£ 387,564.00£ 321,921.00£
6 Return on Capital Employed
Net Profit Before Tax 68,789.00£ 61,271.00£ 58,664.00£ 48,771.00£ 38,923.00£
Employed Capital 272,323.00£ 267,395.00£ 231,155.00£ 140,574.00£ 112,064.00£
7 Capital Gearing Ratio
Common Stock Holder's Fund 224,050.00£ 210,544.00£ 172,599.00£ 140,574.00£ 112,064.00£
Fixed Cost Bearing Funds 47,000.00£ 54,502.00£ 58,500.00£ -£ -£
8 Dividend Coverage Ratio
Net Income 52,744.00£ 46,568.00£ 44,235.00£ 35,850.00£ 28,852.00£
Total Dividend Declared 24,553.00£ 21,736.00£ 18,543.00£ 15,506.00£ 12,110.00£
9 Inventory Turnover 2018 2017 2016 2015 2014
Cost of Goods Sold 230,865.00£ 207,257.00£ 183,147.00£ 152,359.00£ 123,451.00£
Inventory 187,227.00£ 158,500.00£ 125,323.00£ 111,114.00£ 80,432.00£
10 Inventory Turn-Days
360 360 360 360 360 360
Inventory Turnover 1.34 1.46 1.55 1.59 1.67
11 Accounts Receivable Turnover
Sales 591,670.00£ 530,986.00£ 456,169.00£ 387,564.00£ 321,921.00£
Accounts Receivable 64,273.00£ 59,251.00£ 49,303.00£ 36,873.00£ 34,793.00£
12 Accounts Receivable Turn-Days
360 360 360 360 360 360
Accts. Rec. Turnover 9.58 9.78 10.59 10.82 9.34
13 Accounts Payable Turnover
Cost of Goods Sold 230,865.00£ 207,257.00£ 183,147.00£ 152,359.00£ 123,451.00£
Accounts Payable 82,858.00£ 80,995.00£ 61,088.00£ 57,046.00£ 45,289.00£
14 Average Payment Period
360 360 360 360 360 360
Accts. Pay. Turnover 3.17 3.38 6.80 6.89 6.21
15 Earning Per Share
Proft for the Period 52,744.00£ 46,568.00£ 44,235.00£ 35,850.00£ 28,852.00£
Number of Shares 44,595.00£ 44,550.00£ 44,562.00£ 44,245.00£ 43,497.00£
16 Dividend Per Share
Dividend Declared 24,553.00£ 21,736.00£ 18,543.00£ 15,506.00£ 12,110.00£
No. Of Shares 44,595.00£ 44,550.00£ 44,562.00£ 44,245.00£ 43,497.00£
16 Price Earning Ratio
Market Value Per Share 30.11£ 28.09£ 29.69£ 23.45£ 20.83£
Earning Per Share 1.18£ 1.05£ 0.99£ 0.81£ 0.66£
17 Current Assets 269,356.00£ 248,779.00£ 191,334.00₹ 159,593.00£ 112,389.00₹
Current Liabilities 176,841.00₹ 156,927.00£ 109,191.00£ 91,088.00£ 89,546.00£
WORKING CAPITAL
£ 92,515.00 91,852.00£ 82,143.00₹ 68,505.00£ 22,843.00₹
25.46 26.87 29.91 28.94 31.40
0.55 0.49 0.42 0.35 0.28
3738
2.79 2.56 3.00
114 106
3334
53 52
2.67
STOCK PERFORMANCE RATIOS
2018 2017 2016 2015 2014
1.18
1.53
4.77 3.86
2.15 2.14
OVERALL EFFICIENCY RATIO
2.38
2.95 -
2.39 2.31
1.23 1.31 1.46 1.37
2017 2016 2015 2014
-
PROFITABILITY RATIO
25.26% 22.91% 25.38% 34.69% 34.73%
60.98% 60.97% 59.85% 60.69% 61.65%
CAPITAL STRUCTURE RATIO
12.86% 12.58% 12.09%11.63% 11.54%
2018
1.05 0.99
58
216
9.25
39
2.73
246270
9.21 8.96 9.25
226232
10.51
0.81 0.66
0.46 0.51
2018 2017
1.52 1.59
RATIO ANALYSIS SPREADSHEET
LIQUIDITY RATIO
2016 2015
1.75 1.75
0.57 0.49
2014
1.26
0.71

18ANALYSIS OF FINANCIAL PERFORMANCE