Financial and Strategic Analysis of Burberry and Debenhams

Running head: MANAGING STRATEGY
Managing Strategy
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1MANAGING STRATEGY
Table of Contents
1. Financial performance and position of Burberry and its competitor, Debenhams:.....................2
1.1 Profitability analysis:.............................................................................................................2
1.2 Liquidity analysis:.................................................................................................................4
1.3 Financial ratio analysis:.........................................................................................................6
2. Strategic position of Burberry:....................................................................................................8
2.1 Evaluation of the strategic options available to the organisation:.........................................8
2.2 Preferred strategic option for the organisation:...................................................................12
References:....................................................................................................................................13
Appendices:...................................................................................................................................15

2MANAGING STRATEGY
1. Financial performance and position of Burberry and its competitor, Debenhams:
This section aims to evaluate the strategic position of an organisation in the context of the
changing business conditions in the fashion industry of UK. Hence, for fitting the purpose of this
assignment, Burberry Group Plc has been selected, which is one of the leading manufacturer and
distributor of trench coats, fashion accessories, sunglasses, ready-to-wear outwear, fragrances
and cosmetics (Burberry, 2018). In order to enhance the quality of the analysis further, its main
competitor, Debenhams Plc is taken into consideration for comparing with the financial
performance and position of Burberry. Debenhams is a British multinational retailer selling
various kinds of luxury fashion products in UK and Ireland having franchise stores in the other
global nations as well (Debenhams.com, 2018). The financial performance and position of both
the organisations have been analysed with the help of the following ratios, which are described
as follows:
1.1 Profitability analysis:
In order to carry out the profitability analysis of Burberry and Debenhams, the ratios that
have been taken into account comprise of gross margin, operating margin and return on capital
employed (ROCE) and they are illustrated as follows:
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Revenue A 1,999£ 2,330£ 2,523£ 2,515£ 2,766£ 2,282£ 2,313£ 2,323£ 2,342£ 2,335£
Gross profit B 1,442£ 1,658£ 1,766£ 1,763£ 1,933£ 310£ 279£ 299£ 293£ 265£
Operating profit C 346£ 445£ 440£ 403£ 456£ 168£ 129£ 134£ 119£ 71£
Total assets D 1,746£ 1,966£ 2,173£ 2,314£ 2,413£ 2,133£ 2,148£ 2,143£ 2,191£ 2,210£
Current liabilities E 564£ 632£ 581£ 539£ 565£ 742£ 758£ 696£ 688£ 672£
Gross margin B/A 72.14% 71.16% 70.00% 70.10% 69.88% 13.58% 12.06% 12.87% 12.51% 11.35%
Operating margin C/A 17.31% 19.10% 17.44% 16.02% 16.49% 7.36% 5.58% 5.77% 5.08% 3.04%
Return on capital employed C/(D-E) 29.27% 33.36% 27.64% 22.70% 24.68% 12.08% 9.28% 9.26% 7.92% 4.62%
Burberry Group Plc Debenhams Plc
Particulars Details
Profitability Ratios:-

3MANAGING STRATEGY
Table 1: Profitability ratios of Burberry Group Plc and Debenhams Plc for the years 2013-
2017
(Source: Uk.finance.yahoo.com, 2018)
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Burberry Group Plc Debenhams Plc
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
Profitability Ratios of Burberry and
Debenhams
Gross margin
Operating margin
Return on capital employed
Figure 1: Profitability ratios of Burberry Group Plc and Debenhams Plc for the years
2013-2017
(Source: Uk.finance.yahoo.com, 2018)
According to the above figure, it could be found that the gross margin of Burberry Plc
has fallen from 2013 to 2015 with a slight increase in 2016; however, the fall is inherent again in
2017. In case of Debenhams Plc, the gross margin has declined in 2014 followed by a slight
increase in 2015; however, it has continued to decline in the next two years. As commented by
Bryce (2017), gross profit is the amount earned after all the direct costs are deducted from the
overall revenues generated. Gross margin is obtained by dividing sales revenue with the gross
margin. In this case, the gross margin of Burberry is way too higher in contrast to that of