Analysis of Financial Reports of H&M

This report contains an analysis of the financial statements of H&M, a Swedish merchandise company operating worldwide. It consists of the information obtained from the 10-k report filed by the company and is used to analyse the financial statements of the company along with its business practices. Additional knowledge is acquired from the new terms learned while going through the corporate statements. In conclusion, the knowledge is applied in calculating the financial performance of the company by computing various financial ratios.

Running head: ANALYSIS OF ANNUAL REPORTS OF HENNES AND MAURITZ
Brooklyn College – City University of New York
Department of Accounting
Principles of Financial Accounting
Examination of a Corporate Annual Report
Student’s Name ________________________

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ANALYSIS OF FINANCIAL REPORTS OF H&M
Executive Summary
This report contains an analysis of the financial statements of H&M, a Swedish merchandise
company operating worldwide. It consists of the information obtained from the 10-k report filed
by the company and is used to analyse the financial statements of the company along with its
business practices. Additional knowledge is acquired from the new terms learned while going
through the corporate statements. In conclusion, the knowledge is applied in calculating the
financial performance of the company by computing various financial ratios.

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ANALYSIS OF FINANCIAL REPORTS OF H&M
Table of Contents
Executive Summary.....................................................................................................................1
Part 1............................................................................................................................................3
1. Details of the company.........................................................................................................3
2. Summary of Management’s Discussion and Analysis.........................................................3
3. Products Sold by the company.............................................................................................3
4. Auditing of the financial statements.....................................................................................4
5. Understanding the financial statements................................................................................4
Presentation of the financial statements.......................................................................................5

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ANALYSIS OF FINANCIAL REPORTS OF H&M
Part 1
1. Details of the company
Name of company: H & M Group
Principal exchange where the company trades: NASDAQ
Market price of the stock SEK167.18 as of 2 July 2019.
Annual dividend SEK9.75
Last dividend paid on 16 November 2018.
2. Summary of Management’s Discussion and Analysis
The discussions of the management suggest that the company could not reach the
targets that it set for itself for the financial year 2018. This was due to the unexpected
factors that the company faced in the market. The main purpose of the company for the
foreseeable future is expansion. They plan to open around 335 stores around the world
apart from Europe and the US. Due to large amounts of investment in digitalising the
offerings of the company, profits continued to decrease for six straight quarters.
However, the amount of dividend paid by the company is steady and has not dropped in
the past four decades.
3. Products Sold by the company
Established in 1947, H&M is renowned all over the world for its fast-fashion
clothing for teenagers, men and women. Fast-fashion refers to the products which are
sold, used and disposed in a short span. They are not used over a long time by the
consumers with as they go out of trend very soon. Apart from these, the company also
sells beauty care products, home furnishings, jewellery, footwear, home textiles and
home ware used by customers. Apart from these, the company provides distribution and
retailing services in many countries where it is not directly involved in the
manufacturing. It is the second largest retailer of fashion related apparel in the world.

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ANALYSIS OF FINANCIAL REPORTS OF H&M
4. Auditing of the financial statements
The financial statements of the company were audited by the auditing firm Ernst
&Young. The audit report was submitted on 18 February 2019. The auditor’s report mentions
that the audit was conducted on all the elements except for the sustainability report. The other
limitations suffered by the auditor like time constraint and lack of other methods than going
concern in preparing financial statements have limited the extent to which the auditor can
conduct a reliable audit of the financial statements.
5. Understanding the financial statements
There were a number of terms in the financial statements which were encountered
by me for the first time. They include sustainability strategy which means the plan of
action adopted by the company to attain sustainable development in the future. In case of
H&M group, the company intends to drive towards a circular, fair and equal fashion
industry. The other goal set by the company in this regard is becoming climate positive
by the year 2040. Another term that I came across was product flow. This suggests the set
of actions which are required to transfer a product from one system to another. The
company, in this case, has laid its focus on automating its production processes in areas
with capacity constraints. They have also opened a lot of new stores in different parts of
the world to improve the connectivity of its different brands and products everywhere.
Another relatively new term was corporate governance. This term includes the set of
guidelines, rules and regulations which are meant to control the business activities of an
entity. These regulations are in place to ensure that companies do not cause a permanent
damage to the environment and also to remind them of their responsibility towards
stakeholders and the society as a whole. An in-depth analysis of the term corporate
governance structure was also provided by referring to the financial statements of the
company. In H&M’s case, the structure is explained by providing information of the
hierarchy of the organisation and their responsibilities.

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ANALYSIS OF FINANCIAL REPORTS OF H&M
Corporate Governance Structure of H&M Group
Finally, I came across the term nomination committee which is responsible for preparing
information which is used as a basis for making decisions at the general meetings like appointing
the board of directors, appointment of the auditor and the chairman of the annual general
meeting. The report prepared by this committee is available for everyone to read before the
meeting.
Presentation of the financial statements
The preparation of the financial statements was appropriate and clear as they provided the
information required for analysing and understanding the financial performance of the company.
It consisted a clear mention of the underlying assumptions used in the treatment of certain items
in the financial statements. They also contained details about the previous year’s financial
performance of the company which made the comparative analysis of the company’s position
much easier. The auditor’s report also suggests that the company had taken appropriate and
practicable measures in preparing the financial statements. The information provided about the

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ANALYSIS OF FINANCIAL REPORTS OF H&M
financing and stock-in-trade of the company indicates the will of the company to be as
transparent as possible in providing information about its trade practices. Other necessary aspects
like accounting principles and changes in accounting principles were appropriately explained.
Consolidation of financial statements was done as and when required. There was no major
confusion about the preparation of the comprehensive income statement.