Financial Statement Analysis for Burberry Plc.

UMACLK-15-M FINANCIAL STATEMENT ANALYSIS
RESIT Exam Answer Sheet
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1. Analyse, comment on, and interpret (i) three profitability, (ii) two gearing, (iii) one
efficiency, and (iv) two investor related ratios which you feel will help you to assess the
position and performance of the company for the years ending 27 March 2021 and 28
March 2020 only from the perspective of an equity investor.
In your analysis you should include the ratios you have calculated.
Maximum word count: 800 words
Answer:
Answer:
Calculation of ratios
Three Profitability ratios
Ratio Formula 2020 2021
Gross profit
margin
Gross profit / Revenue from
sales * 100
1705.5 / 2633.1 * 100
= 64.77%
1662.5 / 2343.9 *
100
= 70.92%
Net profit margin Net profit / Revenue from sales
* 100
121.7 / 2633.1 *100
= 4.62%
375.7 / 2343.9 *
100
= 16.02
Return on capital
employed
Operating profit or EBIT / (Total
assets – Current liabilities) *100
473.6 / (3292.2 –
730.5) *100
432.2 / (3502.2 –
702.8) * 100

= 18.48% = 15.43%
Analysis, comment and Interpretation of the ratios
Gross profit margin indicates a company’s financial health and in the given case it can be
said that the financial health of the company has improved from 2020 to 2021. So, it a good sign for
investing more in Burberry (Easton and et.al., 2018). Another ratio that is net profit margin has also
increased in the current year as in the year 2020 there was a huge amount of abnormal losses
incurred along with higher amount of assets has been written down. An increase in the net profit
indicates greater returns to the shareholders and thus good for an equity investor to go for
investment in this company. However return on capital employed has reduced in the current year
from 18.48% to 15.43% due to incurring higher overhead costs. so, these costs must be kept under
control.
Two gearing ratio
Ratio Formula 2020 2021
Interest coverage
ratio
Operating profit or EBIT /
Finance cost or interest
expenses
473.6 / 1.4
= 338.28
432.2 / 6.6
= 65.48
Gearing ratio Non – current liabilities /
(Equity + Non - current
liabilities)
1342.9 / (1342.9 +
1218.8)
= 0.524
1239.7 / (1239.7 +
1559.7)
= 0.443
Analysis, comment and Interpretation of the ratios
Interest coverage ratio indicates how many times a company can be able to make payments towards
its interest obligations out of the operating earnings. Here in case of Burberry the ratio has reduced
very much due to higher expenses borne towards interest payments but still the ratio is good
indicating nil financial risk for the company (Robinson, 2020). Gearing ratio indicates the degree at
which the debt funds has been included in the total capital of the company and a reduction in this
ratio indicates that the company is moving towards using more of equity capital over debt capital,
thus less risk for equity investors.
One efficiency ratio
Ratio Formula 2020 2021
Receivables
turnover ratio
Account receivables / Total
revenue from sales * 365
107 / 2633.1 * 365
= 14.83 days
146.9 / 2343.9 *
365
= 22.87 days
Analysis, comment and Interpretation of the ratios
Receivables turnover ratio indicates the company efficiency in extending credits and
collecting debts that are outstanding (Benrqya and Jabbouri, 2021). Here in the case of Burberry the
receivables has increased in 2021 as compared to 2020 which indicates that the company is finding it
difficult to recover its outstanding debt in the current year. Such kind of situation may create
liquidity issues for the company. Therefore, there is a need to tighten the credit policy.

Two investor’s related ratio
Ratio Formula 2020 2021
Earnings per
share
Net profits available to equity
shareholders / Number of
equity shares outstanding
0.30 0.93
Return on equity Net income / Shareholder’s
equity * 100
121.7 / 1218.8 * 100
= 9.98%
375.7 / 1559.7 *
100
= 24.08%
Analysis, comment and Interpretation of the ratios
Earnings per share has increased in the year 2021 as compared to 2020 from 0.30 to 0.93
due to higher profitability in the current year. Also, return on equity has increased substantially
which indicates positive sign for the investors to go for investing in Burberry Plc. to get good returns
on their equity investments.
2. Identify one political, one macroeconomic, one socio-cultural and one technology factor
that affect the company, and evaluate their impact on the company’s financial position
and performance.
Maximum word count: 800 words
Answer:
The PEST analysis is a tool which helps in identifying the factors that are basically external
in nature and also affects the performance and financial position of the Burberry company.
The factors of PEST are as follows:
Political Factors: