Financial Analysis of Michael Kors Holdings Limited

Running head: FINANCIAL ANALYSIS
Financial Analysis
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1FINANCIAL ANALYSIS
Table of Contents
Introduction......................................................................................................................................3
1. Business and Strategic Analysis..................................................................................................3
Analysis of the economy.............................................................................................................3
Macroeconomic Factors affecting Michael Kors Holdings Limited.......................................3
Industry analysis..........................................................................................................................4
Identification of the Industry...................................................................................................4
Identification of the Competitor Company..............................................................................4
Porters Five Force Analysis with Assessment.........................................................................5
Industry’s Growth Potential.....................................................................................................6
Company’s competitive and corporate strategy..........................................................................6
Company’s competitive strategy, risk factors and growth potential.......................................6
Company’s corporate strategy.................................................................................................7
2. Accounting Analysis....................................................................................................................7
Three Key Accounts in the balance sheet of both the company..............................................7
Evaluating the quality of disclosure........................................................................................8
Identifying 3 potential red flags for the company...................................................................9
3. Financial Analysis.....................................................................................................................10
ROE.......................................................................................................................................10
Dupont Analysis....................................................................................................................10
Financial Analysis.................................................................................................................10
Operating management Ratios...............................................................................................11
Investment management Ratios.............................................................................................13

2FINANCIAL ANALYSIS
Financial Leverage Ratios.....................................................................................................15
Cross-sectional analysis.............................................................................................................17
Time Series Analysis.................................................................................................................17
Conclusion.....................................................................................................................................18
References......................................................................................................................................19

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Introduction
The following study deals with the various financial and non-financial analysis of the
chosen American luxury sportswear house company of Michael Kors which is a luxury lifestyle
brand operating worldwide, it has a world-class management team that has been launched since
35 years. The company of Michael Kors has featured distinctive designs when it comes to
products like global accessories, footwear and apparel operating in more than 100 countries. The
company operates in three segments including retail, wholesale and licensing that led to the
company strategically controlled global distribution of network that consist of more than 390
retail stores in the Americas 278 international retail stores and e-commerce sites in U.S. the
discussion consists of the strategy analysis of the businsess that includes industry evaluation,
microeconomic factors and competitive strategy (Rigamonti et al., 2015). In order to analyse the
competitive strategy, the chosen company for the base of the comparison taken is VF
Corporation dealing with similar products in the same industry. Further in the study there has
been financial analysis of the company both year wise and company wise this would enable the
financial position of Michael Kors. For the financial analysis various ratio has been calculated
along with critical analysis of the company’s financial statements from the annual reports.
1. Business and Strategic Analysis
Analysis of the economy
Macroeconomic Factors affecting Michael Kors Holdings Limited
In order to understand the economy of the chosen American luxury sportswear house
company of Michael Kors there has been an analysis of one of the predominant factors among
the various micro economic factors that includes the political, economic, social and the
technological factors related to the company. There are the external factors that affects the
performance and operation of the company. According to the annual report of the Michael Kors
the PEST analysis gives a vivid detail of the operating challenges (Kothari, Mizik &
Roychowdhury, 2015). The Michael Kors Holdings Limited will face in prevalent macro
environment other than competitive forces. The Industry may be highly profitable with a strong
growth trajectory but it will not be any good for Michael Kors Holdings Limited if it is situated

4FINANCIAL ANALYSIS
in a political environment that is not stable. Since the company operates in different nation with
different economies the Macro environment factors of the company includes the rate of inflation,
rate of savings, rate of interest, rate foreign exchange and the economic cycle that helps in the
determination of the aggregate demand and investment the economy(Grant, 2016). On the other
hand the micro environment factors that impacts are competition norms impact the competitive
advantage of the firm. Michael Kors Holdings Limited can use country’s economic factor such
as growth rate, inflation & industry’s economic indicators such as Textile - Apparel Clothing
industry growth rate and consumer spending.
Industry analysis
Identification of the Industry
The process of industry refers to the assessment tool of the market of company of
Michael Kors that reviews the market factors that influence the way the in which the industry
develops. The factors that influence the market of a particular industry are competitors, buyers
and the suppliers, market entrants (Giannakis & Papadopoulos, 2016). The industry in which the
company of Michael Kors Holdings Limited operates is apparel or textile industry. The company
of Michael Kors Holdings Limited lies in the textile or apparel industry lies in range of top
performer with a rank of 38 out of 255 company. Moreover the company of Michael Kors
Holdings Limited has a market share of 2.92%.
Identification of the Competitor Company
The competitor company that is to be analysed with the company of Michael Kors
Holdings Limited is is VF Corporation dealing with similar products in the same industry. The
competitor analysis would enable to identify the complexity of a particular industry (Titman,
Keown and Martin 2017). The VF Corporation shares increased at present increased to 5.01%.
Michael Kors Holdings Limited on the other hand has reached is up 4.97% year at present. In
addition to this since the V.F. Corporation and Michael Kors Holdings Limited are the two most
active stocks in the Textile – Apparel Clothing industry on the basis of recent trading volumes,
of determining whether one is a better has a better investment than the other, There must be a

5FINANCIAL ANALYSIS
comparison of the two companies in terms of growth (Fischer & Pascucci, 2017). It can be
observed that VF corporation has a grow earnings at a 11.34% annual rate. In comparison to
KORS is expected to grow at a 5.60%. All else equal, VFC’s higher growth rate would imply a
greater potential for capital appreciation.
It can be said that Michael Kors beats V.F. Corporation when it comes to market share
and profitability. It has been seen that Kors is growing fast and generates high return on
investment, has a lower financial risk (Valickova, Havranek & Horvath, 2015).
Porters Five Force Analysis with Assessment
The Porter’s five forces framework that helps in the analysing the present competition of the
company it includes the following heads:
 Threat of new entrants: In the industry of textile and Apparel a new entrant brings
innovation and new procedures of business strategy and it may be a pressure on Michael
Kors Holdings Limited with reducing costs, lower strategy pricing and new value offers
to the clients.
 Bargaining power of the suppliers: The suppliers who are powerful in the sector of
consumer goods may possess a negotiating power for extracting higher prices in the field.
It may impact to the company if the supplier bargaining power is low in the overall
profitability (Chandra 2017).
 Bargaining power of the Buyers: It can be of pressure on the Michael Kors regarding
the profitability in long run. If there is small and more powerful customer base in the
Michael Kors there is a higher the bargaining customers’ power and higher ability to seek
discounts along with the offers.
 Threat of the substitutes: At the time of a new product launch that meets some similar
needs of the customer the profitability of the industry suffers. In case threat of a substitute
is high thee is a high value offer that is different from present prepositions of the
industry.