Financial Analysis and SWOT Analysis of Retail Industry

The assignment provides a detailed financial analysis of ASOS, JD Sports Fashion, and Sports Direct, including balance sheets, income statements, and key ratio calculations. Additionally, it conducts a SWOT analysis of the retail industry using Porter's Five Forces model and identifies strengths, weaknesses, opportunities, and threats. The document also includes references to online resources and academic articles related to the topic.

How Are ASOS, JD Sports and Sports
Direct Able to Effectively Compete
Within The UK Apparel Market

TABLE OF CONTENTS
INTRODUCTION AND RATIONALE..........................................................................................1
Introduction............................................................................................................................1
Rationale.................................................................................................................................2
PEST ANALYSIS AND CSF..........................................................................................................2
PEST Analysis........................................................................................................................2
Critical Success Factor (CSF)................................................................................................4
INDUSTRY COMPETITION ANALYSIS....................................................................................5
COMBINED RATIO ANALYSIS..................................................................................................7
Financial Ratio Analysis.........................................................................................................7
Non-financial Analysis.........................................................................................................16
SWOT ANALYSIS.......................................................................................................................17
SWOT Analysis of ASOS company:...................................................................................17
SWOT Analysis of JD Sports company:..............................................................................19
SWOT Analysis of Sports Direct company:........................................................................20
OVERALL RANKING.................................................................................................................20
Altman Z-score.....................................................................................................................21
Regression Analysis.............................................................................................................22
Overall Ranking....................................................................................................................25
CRITICAL REFLECTION............................................................................................................26
RECOMMENDATIONS...............................................................................................................26
CONCLUSION..............................................................................................................................27
REFERENCES..............................................................................................................................28

ILLUSTRATION INDEX
Illustration 1: Porter's 5 Forces Model.............................................................................................5
Illustration 2: Gross Profit Ratio......................................................................................................8
Illustration 3: Net Profit Ratio.........................................................................................................8
Illustration 4: Current ratio..............................................................................................................9
Illustration 5: Quick Ratio.............................................................................................................10
Illustration 6: Total assets turnover ratio.......................................................................................11
Illustration 7: Inventory or stock turnover ratio.............................................................................12
Illustration 8: Debt to equity ratio..................................................................................................13
Illustration 9: Interest coverage ratio.............................................................................................14
Illustration 10: Earning per share...................................................................................................15
Illustration 11: Employee Turnover Ratio.....................................................................................17
Illustration 12: Altman Z-Score.....................................................................................................22

INDEX OF TABLES
Table 1: Calculation of profitability ratios.......................................................................................7
Table 2: Calculation of Liquidity ratios...........................................................................................9
Table 3: Calculation of Efficiency ratios.......................................................................................10
Table 4: Calculation of Solvency ratios.........................................................................................12
Table 5: Calculation of investor ratio............................................................................................14
Table 6: Calculation of employee turnover ratio...........................................................................16
Table 7: Calculation of Altman Z-Score........................................................................................21

INTRODUCTION AND RATIONALE
Introduction
Apparel industry is one of the fastest growing sector in UK which contributes in the
growth rate of UK economy up to the greater extent. Under the respective industry, at the
majority level cloth and footwear comes into consideration and sold by its organisations. There
are huge number of companies operate in the apparel industry and generate higher revenue and
profit. The reason is that, they provide cloths and footwear according to the new and innovative
fashions. In the present study, basically three firms undertaken to carry out research on the
competition level of apparel industry of UK. First company introduced in the present case is
ASOS which operates in the clothing retail sector where major products offered by it are like
clothes, shoes, beauty and accessories. Second firm is JD Sports Fashion Plc which also operates
under the retail industry and products of it are clothing and sportswear accessories. At the last,
third organisation considers for conducting present study is Sports Direct International Plc which
has presence in the retailing sector and offer sporting goods only.
The present research focuses on the competition level of chosen businesses which are
operating in the Apparel industry of UK economy. In order to make effective analysis that, such
entities compete in the respective industry up to which extent, there are three concepts are used
which are like financial, non-financial and statistics. Under the financial perspective, the present
study is carried out by taking support of the ratio analysis and Altman Z-Score. With the help of
such methods business performance in the competition of UK apparel industry is measured with
profitability and liquidity position. Apart from this, non-financial performance of ASOS, JD
Sports and Sports Direct is analysed with the help of PEST, and Porter's five forces analysis.
Through these techniques, overall business performance can be measured effectively up to the
greater extent. In this, quality of the products like cloths, footwear and sports accessories along
with the several internal aspects analysed properly. In addition to this, regression analysis
method is focused in the present research which rely under the statistical aspect or perspective. In
this tool of SPSS, effectual relationships between two depended variables are identified and
measured.
Along with this, study explains the SWOT analysis of cited businesses of apparel
industry. By considering this particular non-financial analysis method, strengths, weaknesses,
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opportunities and threats are identified by the reader which they have in the mentioned market
segment. Beside these all, ranking is given to all the companies in terms of business performance
within industry of cloths and footwear. Further, the present report focuses on critical reflection
under which self learning and benefits of this study in the future are explained. At the last part of
the project, recommendations to the ASOS, JD Sports and Direct Sports companies are provided.
Further, in the suggestion part, strategies provided in order to boost up business performance in
the apparel industry to the cited organisations effectively.
Rationale
The rationale behind conducting the present study is to analyse business performance of
the cited companies like ASOS, JD sports and Soprts Direct in the competition market of UK
apparel industry. In this respective sector, several numbers of the firms operating and providing
cloths and footwear which create cut throat competition. Further, it is necessary to determine
performance level which supports to make proper strategies for the upcoming years. Along with
this, to analyse competition financial and non-financial analysis methods are considered which
are like as ratio, porter five forces, PEST, regression, Altman Z-Score etc. The reason behind
using these techniques only is that, these help to carry out proper and effectual research and
determine effective as well as reliable conclusion (Kapoor, 2014). Moreover, ratio analysis
provides clear outline of the business condition and due to which it is considered for analysing
financial perspectives of the firms.
PEST ANALYSIS AND CSF
PEST Analysis
In order to make analysis of business environment and its condition in the respective
industry there are different kinds of tools and methods used by the company. One of the
important technique is PEST analysis where basically four factors considered which are like
political, economic, socio-cultural and technological (Shabanova and et.al., 2015). Explanation
of such aspects is given as below:
Political factors:
Various number of elements affect to the company under the political environment which
are like rules and regulations and other laws. When government of the UK make changes in any
kind of legal legislations then current business process become change up to the greater level
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(Khosravi and Matikolay, 2015). For instance: minimum wages of the labour increased by the
government of UK then it leads to increase employees expenses of cited firms. Therefore, total
cost of cloths and footwear increase which create negative impact on the profitability condition.
On the other side, if minimum wage rate declined then such companies will beneficial and able
to earn more profit. Apart from this, European Union create the highest impact on overall apparel
industry. The reason is that, EU provides trade free area to the organisations where any kind of
taxes and tariffs are not needed to pay. Along with this they have freedom in order to export and
import cloths and other apparel items. When EU exit from the British, then such companies not
able to easily enter in the international market and generate profit.
Economic factors:
Another element of PEST analysis is economic which includes financial aspects and
directly affect to the profit generation capability of the apparel industry's firms. In this, basically
factors of the monetary policies are involved which create both negative and positive impact on
the working environment of selected businesses. Under the economic factors, inflation,
recession, interest rate, unemployment policies and other monetary aspects are included. When
any factor among these all gets change then overall apparel industry and its firms affected up to
the higher extent (Ravija, 2016). For example: due to increasing in the inflation rate, prices of
cloths and footwear increase where purchasing power of the local community of UK economy
reduce. Therefore, selling and turnover the cited companies affect in the negative ways which is
sign of profit declining in the industry. Apart from this, if interest rate increases in the UK
economy then company needs to pay more amount on the debt and loan taken by different
financial institutions. It is indication of enhancing indirect expenses and ultimately net income of
the businesses reduce at the end of financial year.
Socio-cultural factors:
To the apparel industry socio-cultural elements also influence up to the larger extent.
Under this, consumer needs and requirements included at the majority level and necessary for the
cited firms to fulfil them. Due to changing in several kinds of the demographic factors, cited
firm's operation and selling department affects up to the greater level. Therefore, revenue and
profitability situations of the selected firms of apparel industry also influenced in adverse
direction. For example: If income of the people or customers increase then living standard will
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also improve accordingly. Due to this, they will demand higher quality of the cloths and shoes
from the chosen business organisations. Therefore, the management needs to make modifications
in the existing manufacturing procedures along with purchasing high quality of raw materials
(Igliński and et.al., 2016). When the cited firms adopt such kind of changes then overall smooth
functioning affects and costing level also increased. Hence, it can be said that due to occurring
change in the socio-cultural aspects, apparel industry affects.
Technological factors:
In the current era, technology plays a major role in each industry and every company,
which come up with innovations within very short period of time. When the management of
cited enterprises use and adopt innovative technologies at the workplace then at the very first and
foremost they need to provide training to the employees. The reason is that, new technologies
included new and addition features by which workforce not aware. It leads to create expenses or
financial burden on the companies and affect business performance negatively (Gerwick and
Sparks, 2014). On the other side, by adopting new technology the firms able to produce higher
quality of products and wastage will reduce. Henceforth, sales and revenue influenced in positive
direction up to the higher extent and help to ASOS, JD sports and Soprts Direct firms to raise
existing financial health.
Critical Success Factor (CSF)
Those factors which are mandatory to implement at the workplace in order to meet with
the expected objectives and purposes of the firm are called as critical success factors. Further,
CSFs for the cited firms are described below:
 According to political factors, the ASOS, JD sports and Soprts Direct companies are
necessary to use or follow all the available legal rules, laws and legislations in proper and
adequate manner at the workplace. The various laws are like, minimum wages act, anti-
trust, discrimination, employment etc. When these firms follow in the working
environment then able create positive image which is sign of achieve desired goals and
objectives (Ghezzi, Rangone and Balocco, 2013).
 In the economic aspects, the cited enterprises have to reduce the total cost of production
and charge lower prices from the customers.
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 When all the selected organisations fulfil customer's needs, requirements and preferences
in adequate and proper direction then they will easily able to attract them and boost up
sales and profitability in the apparel industry of UK. Further, CSFs are such as needs and
preferences of the consumers.
 Moreover, as per the technological elements, the ASOS, JD sports and Soprts Direct
entities must adopt and use all the innovative techniques which lead to reduce cost of
production as well as wastage items and increase quality of apparels.
INDUSTRY COMPETITION ANALYSIS
In order to make analysis of competition within industry there are several kinds of the
methods and tools available. In the present study Porter's 5 forces model is considered which is
explained with reference to apparel industry as below:
Illustration 1: Porter's 5 Forces Model
Bargaining power of customers:
Under this kind of factor of competition analysis, customers have power in order to
negotiate with the existing companies while purchasing cloths and shoes. Very basic reason is
that, in the apparel industry, in the cloths there are huge number of the fashions available.
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Therefore, if the firms not bargain with the consumers then they will switch towards their rivals
immediately (Rajasekar and Al Raee, 2013). In the fashion and apparel industry, bargaining
power of the users or buyers is the higher as compare to other market segments. Along with this,
there are wide range of alternative companies available in the clothing market and due to which
buyers have highly negotiation power.
Bargaining power of suppliers:
In the industry of apparel and clothing, range of fashion is too much high and wide due to
which bargaining power of the ASOS, JD sports and Soprts Direct companies is relatively lower
in comparison to the consumers. Therefore, the suppliers can bargain and negotiate with the
customers at the lower level. In addition to this, cost of input is relatively very low and in
opposite to that bargaining power of the firms is higher (E. Dobbs, 2014). Henceforth, at the
global level, apparel industry has the lower development in comparison to other market sectors.
Threat of new entrants:
As earlier explained that, in the apparel industry, wide range of fashions and innovations
are there. When the potential companies which enter in the market of apparel then have to offer
unique products and garments to the local community of UK (Bush, 2016). When talking about
differentiate and unique items then there is very little opportunities with the new entrants to
provide on the table of apparel market. Moreover, when the new firms enter in the respective
industry then become threat for the ASOS, JD sports and Soprts Direct businesses up to the
higher level. This reason leads to reduce capabilities of the existing apparel firms in order to
generate profit at the end of year.
Threat of substitute products:
In the apparel industry, there is any of the substitute products are available of the
garments and shoes which is one of the very significant and profitable for it (Yunna and
Yisheng, 2014). Due to not having any substitute items, the firms of chosen market able to
generate more sales and earn income in the appropriate direction. On the other hand side, there is
cut throat competition within this industry by which profitability affects adversely.
Existing rivals within apparel industry:
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In the clothing market, competition level is at the very huge extent by which the selected
business need to provide highly differentiate as well as unique garments to the people of UK
country. In the cloths and footwear, wide range of innovations come into consideration on daily
basis by which it can be said that, there is cut-throat competition (Sutherland, 2014). Further,
those businesses which currently operate in the apparel industry of UK lead to influence ASOS,
JD sports and Soprts Direct firms in negative direction.
COMBINED RATIO ANALYSIS
In order to assess performance of the companies in particular industry there are different
kinds of measurement used by the management. Among several kinds of the models of
identifying business performance, basically financial ratios and non financial measures are the
highly important (Vogel, 2014). Further, such kinds of analysis of ASOS, JD sports and Soprts
Direct entities are explained below:
Financial Ratio Analysis
Profitability ratios:
Table 1: Calculation of profitability ratios
Profitability ratios Formula Name of companies
ASOS JD Sports
Sports
Direct
Gross income 722 884 1285
Net sales 1445 1822 2904
Gross Profit Ratio
Gross income / Net sales
*100 49.97% 48.52% 44.25%
Net income 24 98 277
Net sales 1445 1822 2904
Net Profit Ratio Net income / Net sales * 100 1.66% 5.38% 9.54%
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ASOS JD Sports Sports Direct
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
0.49
0.5
0.51 49.97%
48.52%
44.25%
Gross Profit Ratio
Illustration 2: Gross Profit Ratio
ASOS JD Sports Sports Direct
0
0.02
0.04
0.06
0.08
0.1
0.12
1.66%
5.38%
9.54%
Net Profit Ratio
Illustration 3: Net Profit Ratio
From the above graphs it can be found that ASOS business entity is able to generate the
highest GP ratio at the end of FY 2016 which is 49.97% in comparison to the other businesses.
Same ratio of JD Sports and Sports Direct is like 48.25% and 44.25% in which the previous
entity able to perform better in the apparel industry of UK.
When looking at the column chart of Net Profit Ratio then it can be analysed that, Sports
Direct enterprise has the highest performance in the industry as value is such as 9.54%. Apart
from this, NP ratio of ASOS as well as JD Sports entity is like 1.66% and 5.38% respectively
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(Income Statement of ASOS Plc, 2016). It can be said from the overall profitability analysis that;
Sports Direct entity performs better in the UK's apparel industry at end of accounting period
2016.
Liquidity ratios:
Table 2: Calculation of Liquidity ratios
Profitability ratios Formula Name of companies
ASOS JD Sports
Sports
Direct
Current assets 446 511 1311
Current liabilities 429 348 541
Current ratio Current assets / Current liabilities 1.04:1 1.47:1 2.42:1
Current assets 446 511 1311
Closing stock 258 238 702
Prepaid expenses 9 30 25
Current liabilities 429 348 541
Quick ratio
Current assets – (closing stock +
prepaid expenses) / Current
liabilities 0.42:1 0.70:1 1.08:1
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ASOS JD Sports Sports Direct
0
0.5
1
1.5
2
2.5
3
1.04
1.47
2.42
Current Ratio
Illustration 4: Current ratio
ASOS JD Sports Sports Direct
0
0.2
0.4
0.6
0.8
1
1.2
0.42
0.70
1.08
Quick Ratio
Illustration 5: Quick Ratio
It can be assessed from the current ratio, that, Sports Direct business entity performs well
in the overall apparel industry of UK. The reason is, proportion of respective ratio is 2.42:1
which is lower than 1.04:1 and 1.47:1 which are for the ASOS and JD Sports company
respectively. Henceforth, it can be evaluated that, Sports Direct firm has the highest capability
among the three entities in terms of paying short-term debts at the end of financial period 2016.
Along with this, as compare to the ideal ratio i.e. 2:1 also performance of the Sports Direct firm
is the best in the UK's apparel market sector.
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1.08:1 quick ratio reflects about the Sports Direct company which is higher in
comparison to other mentioned enterprises of apparel segment (Babalola and Abiola, 2013).
Proportion of this particular ratio for the ASOS and JD Sports firm is 0.42:1 and 0.70:1
respectively where second one has the better performance. As per quick ratio, Sports Direct
entity able to meet with the short-term obligations in proper direction compare to others. Further,
firm with the highest performance also able to beat with the standard ratio i.e. 1:1 in the apparel
industry.
Efficiency ratios:
Table 3: Calculation of Efficiency ratios
Efficiency ratios Formula Name of companies
ASOS JD Sports
Sports
Direct
Net sales 1445 1822 2904
Average total assets 564 737 2067
Total assets turnover
ratio
Net sales / Average total
assets 2.56 times 2.47 times 1.40 times
Cost of goods sold 723 937 1620
Average inventory 226 232 1219
Inventory or stock
turnover ratio COGS / Average inventory 3.20 times 4.04 times 1.33 times
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ASOS JD Sports Sports Direct
0
0.5
1
1.5
2
2.5
3
2.56 2.47
1.40
Total Assets Turnover Ratio
Illustration 6: Total assets turnover ratio
ASOS JD Sports Sports Direct
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
3.20
4.04
1.33
Inventory or Stock turnover ratio
Illustration 7: Inventory or stock turnover ratio
By considering the total assets turnover ratio it can be determined that, firm is up to
which extent efficient in terms of generating revenue at the end of financial year (Delen, Kuzey
and Uyar, 2013). At the present case study, ratio of the ASOS is 2.56 times where others like JD
Sports and Sports Direct have values i.e. 2.47 times and 1.40 times respectively. On the basis of
this, it can be analysed that ASOS firm has the highest performance in the industry and uses total
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assets in optimum ways. Other entities are not much efficient for earning sales with the help of
available total assets within the apparel segment of UK economy.
Second ratio of efficiency measurement like stock turnover reflects that, JD Sports
company is the most efficient in order to earn revenue using available inventory within working
environment. The reason is that, it has the highest value of this ratio i.e. 4.04 times which is
higher than 3.20 times and 1.33 times of the ASOS and Sports Direct firms respectively.
Moreover, it can be concluded that, JD Sports company use stock in highly optimum manner in
order to generate revenue at the end of fiscal year 2016 (Balance sheet of JD Sports, 2016). Here
the Sports Direct company needs to make effective strategies and give training to the workforce
of production department in order to utilise the stock in optimum ways.
Solvency ratios:
Table 4: Calculation of Solvency ratios
Solvency ratios Formula Name of companies
ASOS JD Sports
Sports
Direct
Debt 21 42 222
Equity 200 382 1386
Debt to equity ratio Debt / Equity 0.11:1 0.11:1 0.16:1
Earnings before interest and
taxes 43 132 362
Interest expenses 0.00 2 8
Interest coverage ratio EBIT / Interest expenses 0.00 66 45.25
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ASOS JD Sports Sports Direct
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.11 0.11
0.16
Debt to equity ratio
Illustration 8: Debt to equity ratio
ASOS JD Sports Sports Direct
0
10
20
30
40
50
60
70 66
45.25
Interest coverage ratio
Illustration 9: Interest coverage ratio
The financial ratio which is used by the company in order to assess its capability for
fulfilling it's long terms obligations at the end of year is called as the solvency ratio. Under this,
basically two types of the ratios are involved which are debt to equity and interest coverage
(Kou, Peng and Wang, 2014). The highest debt to equity ratio i.e. 0.16:1 for Sports Direct
company reflects that, it raised the more capital from external party at the end of FY 2016 in
comparison to other firms. Further, proportion of this ratio of ASOS and JD Sports is same i.e.
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0.11:1 where both the enterprises have higher performance at the end of FY 2016. In this case,
the last company reflected in graph, needs to reduce capital raising and boost up profitability at
the end of year.
From the interest coverage ratio, it can be ascertained that, value of ASOS is zero
because it is not paid any kind of interest amount to the financing source at the fiscal year ending
2016. Apart from this, proportion of this specific ratio in the JD Sports and Sports Direct firm is
like 66 and 45.25 respectively. Here, it can be said that, previous entity is easily and frequently
able to pay its long-term loan in proper direction (Post and Byron, 2015). Moreover, business
performance of Sports Direct organisation is the worst according to this ratio in apparel sector.
Investor ratios:
Table 5: Calculation of investor ratio
Investor ratio Formula Name of companies
ASOS JD Sports
Sports
Direct
Profit available for
equity shareholders 24 98 277
Number of equity shares
outstanding 83 980 295
Earnings per share
Profit available for equity
shareholders / Number of
equity shares outstanding 0.29 0.1 0.94
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ASOS JD Sports Sports Direct
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0.29
0.10
0.94
Earnings per share
Illustration 10: Earning per share
The ratio which is used by shareholders or investors at the time of making investment or
purchasing shares of the company is known as the investor ratio. The firm which has the highest
value of this measurement, that will be selected by the shareholder in order to put money (Uechi
and et.al., 2015). In this, Earning Per Share (EPS) ratio is used at most of the times which shows
that firm is generating how much amount from per equity share. In the present scenario, 0.94
value reflects about the Sports Direct which is higher as compare to other apparel industry's
enterprises. Further, at the second number ASOS firm comes where EPS is worth of 0.29 and the
worst performance is of the JD Sports company due to having the lowest ratio i.e. 0.10. Further,
major number of shareholders will put money in the Sports Direct company which gives the
highest return at the end of year.
Non-financial Analysis
Apart from the financial ratios, other method in order to analyse business performance is
non-financial ratios where any kind of data from the accounting department are not considered.
Under this one of the most effective measurement is used by the management which is such as
staff or employee turnover ratio. It shows that, how many numbers of employees left the
organisation and replaced by the new workers in terms of percentage (Reh, 2017). Lower the
value of staff turnover ratio is the best for an entity and shows that it performs well in the
industry. In the present scenario three companies are analysed which are ASOS, JD Sports and
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Sports Direct. In order to calculate employee turnover ratio particular formula is used by the
analyst which is like:
Employee or staff turnover ratio = Number of employees who left / Total number of
employees
Moreover, performance of these mentioned firms of apparel industry using the employee
turnover ratio is stated below:
Table 6: Calculation of employee turnover ratio
Employee Turnover Ratio Formula Name of companies
ASOS JD Sports
Sports
Direct
Number of workers who left 732 3210 3056
Total number of current
workforce 4000 16218 18280
Employee Turnover Ratio
Number of workers who left /
Total number of current
workforce 18.30% 19.79% 16.72%
ASOS JD Sports Sports Direct
0.15
0.16
0.17
0.18
0.19
0.2
0.21
18.30%
19.79%
16.72%
Employee Turnover Ratio
Illustration 11: Employee Turnover Ratio
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From the aforementioned graph it can be analysed that, Sports Direct company has staff
turnover ratio is 16.72% which is the lowest among other available firms of the apparel market
segment. Apart from this, in the ASOS and JD Sports firm percentage of this ratio is such as
18.30% and 19.79% respectively. Higher value of this ratio is the worst situation for the firm
because it leads to reduce total revenue at the end of year. According to the present case scenario
it can be said that, Sports Direct company able to perform well in the industry in terms of
employee turnover where JD Sports's performance is poor. Further, the management of other two
companies should use effective policies of retention which lead to decline the employee turnover
ratio in the upcoming period.
SWOT ANALYSIS
Apart from the making external analysis using financial and non-financial ratios, it is
necessary to assess internal business performance in appropriate manner. In order to analyse
internal performance, is SWOT analysis is one of the best and highly effective measurement
model. It stands for Strengths, Weaknesses, Opportunities and Threats which is with respect to
the ASOS, JD Sports and Sports Direct companies mentioned below:
SWOT Analysis of ASOS company:
Strengths:
 ASOS company has the sells more than 850 brands along with having own clothing and
accessories range.
 It is the largest independent online as well as fashion and beauty retailer of the UK's
apparel industry.
 It has selling and business over 200 countries in the world.
 ASOS company is connected with the consumers through all kinds of the social media
networks.
 Number of employee working are more than 4000.
 It always comes up in the market with new and innovative products and fashions in the
UK's apparel industry.
 It delivers products and services up to the customers with free shipping charges.
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Weaknesses:
 Major weakness of ASOS company is that, due to free shipping, total cost increases from
100 million pounds on every accounting year.
 Approximate 30% of the sales returned by the customers to the ASOS firm which lead to
enhance additional shipping charges for the firm (ASOS SWOT Analysis, USP &
Competitors, 2017).
Opportunities:
 Very basic opportunity of ASOS firm is that, people always willing to purchase more
products due to uniqueness and innovations.
 It has opportunity to spread business in global market or go for the globalisation and
connect with the people across the world.
 Enhancing mobile penetration which is supportive in order to enhance purchasing of the
local community through mobile platforms.
Threats:
 Uncertainties in the economic times is one of the major threat for the ASOS company.
 Those retailers who provide products or services through digital and physical both terms
may have high brand image among customers. Further, being an online store ASOS has
this particular threat in the apparel industry.
SWOT Analysis of JD Sports company:
Strengths:
 The brand has differentiated its products from the other brands.
 There is a support of leading sports brand to the company.
 Its main strength is its net cash balance sheet.
 The company provides a very satisfactory customer service.
Weaknesses:
 Its profits have come under pressure from ongoing investment n the business.
 Sales of the company has declined.
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 The company only sells the sports wear products.
 The high price of the products might put the people off.
Opportunities:
 The network targets have been scaled back significantly and full multinational
development should enable the group to grow much more profitably (JD Sports Fashion
SWOT Analysis - Strengths, Weaknesses, Opportunities, Threats of JD Sports Fashion,
2017).
 Online accounts estimates only 7% of the total sales, so there is a wide scope to rise in
this further.
 They should get a sportsman participating in sports to endorse their product.
Threats:
 There is a rise in interest rate of the company share.
 Increase in competitive activity in the market.
 The retailers operate in a very competitive sector, with competition coming from a
number of dynamic specialists, non-specialists and online retailers.
SWOT Analysis of Sports Direct company:
Strengths:
 Its UK's number one sports retailer with over 470 stores.
 It has Strong online presence with the tag line 24 hrs. Delivery, which gives access to
customers to get the products delivered to their home.
 It has a tie up with large number of famous sports brands like Nike, Adidas, Reebok, etc.
 It is a trusted brand of UK as it has been for over decades.
Weaknesses:
 It has a slow growth of market as sports industry is highly competitive market.
 The company operates under low margins which creates doubt about future profitability
(Sports Direct SWOT Analysis, USP & Competitors, 2017).
Opportunities:
 The company follows aggressive strategies in acquiring brands across Europe which
gives it opportunity to reach customers across segments.
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 Company has exciting opportunities to establish its business in eastern and western
Europe.
Threats:
 As the firm operates at low profit margin, rising of raw material cost can affect its
revenue.
 The tax changing policy due to eurozone crisis can adversely affect the functioning of the
company.
 Development of new digital technologies can cause strong technological problems.
OVERALL RANKING
With the help of this particular section like overall ranking, the analyst able to derive
business performances of all the companies and on the basis of that decisions are taken. It
includes basically three models or criteria which are such Altman Z-Score, regression analysis
and overall ranking based on several concepts (Almamy, Aston and Ngwa, 2016). Further,
according to such models, overall ranking to the ASOS, JD Sports and Sports Direct is given as
below:
Altman Z-score
The method where bankruptcy level of the company is to be assessed in the industry and
helps to derive performance in proper manner is known as Altman Z-Score. It is computed on the
basis of generally five ratios which are denoted or introduced with alphabetical symbol in the
present study like A, B, C, D and E. Standard score of this particular model is 3 where if the
company has Z-Score less than 3 then it can be analysed that it is under the bankruptcy. Apart
from this, when entity has Z-Score more than 3 then it can be said that, it is not under the
bankruptcy in the industry (Altman and et.al., 2017). For the ASOS, JD Sports and Sports Direct
apparel company, Altman Z-Score and its analysis is given as below:
Particulars Name of companies
ASOS JD Sports Sports Direct
Working capital 17 163 770
Total assets 650 791 2360
Retained earnings 255 379 1482
21

Earning before interest and taxes 43 132 362
Market value of equity 200 382 1386
Sales 1445 1822 2904
Total liabilities 450 409 973
A = Working capital / total assets 0.03 0.21 0.33
B = Retained earnings / total assets 0.39 0.48 0.63
C= Earnings before interest and tax /
total assets 0.07 0.17 0.15
D = Market value of equity / total
liabilities 0.44 0.93 1.42
E = Sales / total assets 2.22 2.30 1.23
Table 7: Calculation of Altman Z-Score
Particulars Formula Name of companies
ASOS JD Sports Sports Direct
1.2A 0.03 0.25 0.39
1.4B 0.55 0.67 0.88
3.3C 0.22 0.55 0.51
0.6D 0.27 0.56 0.85
1.0E 2.22 2.30 1.23
Altman Z-Score
1.2A + 1.4B + 3.3C +
0.6D + 1.0E 3.29 4.33 3.86
Ranking to the company 3 1 2
22

ASOS JD Sports Sports Direct
0
1
2
3
4
5
3.29
4.33
3.86
Altman Z-Score
Illustration 12: Altman Z-Score
It can be found from the above stated graph that, all the companies have Altman Z-Score
higher than 3 which reflects that, any firm not comes under the bankruptcy. Z-Score of ASOS
organisation is 3.29 which is nearby 3 but higher than it due to which is not considered in this
kind of practices. In addition to this, Z-Score of JD Sports and Sports Direct are such as 4.33 and
3.86 respectively where it can be said that, these both have better performance in the industry.
Regression Analysis
The model which helps to assess relationship between two depended variables is known
as the Regression analysis (Draper and Smith, 2014).
Regression of JD Sports
Regression Statistics
Multiple R 0.9933400398
R Square 0.9867244346
Adjusted R Square 0.9834055433
Standard Error 8.5433634188
Observations 6
23

ANOVA
df SS MS F Significance F
Regression 1
21700.0437659
746
21700.04376
59746
297.305434
6781
6.6384903884
1089E-005
Residual 4
291.956234025
4
72.98905850
64
Total 5 21992
Coefficie
nts
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
-
138.479
8151325
14.15144
2748
-
9.78556
16277
0.00061
11694
-
177.7705
190818
-
99.1891
111832
-
177.770
5190818
-
99.1891
111832
Cost of
revenue
0.25891
95056
0.015016
3141
17.2425
472213
6.63849
038841
089E-
005
0.217227
5337
0.30061
14775
0.21722
75337
0.30061
14775
Regression of ASOS
Regression Statistics
Multiple R 0.0462019162
R Square 0.0021346171
Adjusted R Square -0.2473317287
Standard Error 8.593139027
Observations 6
24

ANOVA
df SS MS F Significance F
Regression 1 0.6318466508
0.631846650
8
0.00855673
36 0.9307464374
Residual 4
295.368153349
2
73.84203833
73
Total 5 296
Coefficie
nts
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
32.8577
318285
9.913956
3872
3.31429
0536
0.02953
56875
5.332176
1441
60.3832
875129
5.33217
61441
60.3832
875129
Cost of
revenue
-
0.00157
96166
0.017076
4539
-
0.09250
2614
0.93074
64374
-
0.048991
4536
0.04583
22203
-
0.04899
14536
0.04583
22203
Regression of Sports Direct
Regression Statistics
Multiple R 0.8414307997
R Square 0.7080057907
Adjusted R Square 0.6350072384
Standard Error 37.798031257
Observations 6
ANOVA
df SS MS F Significance F
25

Regression 1
13856.7353323
757
13856.73533
23757
9.69890180
14 0.0357227398
Residual 4
5714.76466762
44
1428.691166
9061
Total 5 19571.5
Coefficie
nts
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Lower
95.0%
Upper
95.0%
Intercept
-
109.612
4387857
99.49623
24755
-
1.10167
4265
0.33243
5676
-
385.8582
66428
166.633
388856
6
-
385.858
266428
166.633
3888566
Cost of
revenue
0.20521
50428
0.065894
3095
3.11430
59903
0.03572
27398
0.022263
1097
0.38816
69758
0.02226
31097
0.38816
69758
When looking at the above mentioned tables of the regression it can be identified that
percentage in the cost affect revenue in different direction. Higher the impact of this kind of the
factors is the most beneficial for entity. In the present study, under JD Sports, ASOS and Sports
Direct company value of percentage change is such as 0.9867, 0.0021 and 0.7080 respectively.
Higher the changes incur in JD Sports company by which it can be said that it performs well in
the UK's industry of apparel.
Overall Ranking
Based on FR-
From the financial ratios it can be derived that, Sports Direct company is at the first rank
due to having higher profitability, liquidity, efficiency etc. ratios. Apart from this, JD Sports
performing at the rank number second in the apparel industry of UK economy. When looking at
the overall financial ratio's calculation then it can be found that, ASOS is at the lower or the third
rank at the end of fiscal period 2016.
Based on NFR-
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As per the non-financial ratio like employee turnover, at the top rank Sports Direct
company comes where proportion of the ratio is like 16.72%. Further, ASOS and JD Sports firms
of the apparel industry are at the second and third rank respectively. The reason is that these
entities have employee turnover ratio i.e. 19.79% and 18.30% at the end of year 2016.
Based on SWOT-
ASOS business entity is at the better rank as compare to other apparel industry's firms on
the basis of SWOT model. Further, Sports Direct and JD Sports company are at the second and
third rank or position respectively in the market segment of apparel in UK.
Based on S (Score)-
According to the Altman Z-Score the JD Sports firm is at the first rank whereas at the
second rank Sports Direct comes and its Z-Score are like 4.33 and 3.86 respectively. At the last
or third rank, ASOS organisation comes where Z-Score is 3.29 at the financial year ending 2016.
CRITICAL REFLECTION
From the present report I able know that, apart from the financial ratios, there are several
models also used by the analyst in order to measure or analyse business performance in the
industry. Apart from this, it was the great experience for me because I able to perform various
kinds of the calculations along with the Altman Z-Score. Before this study, I have not any idea
about the bankruptcy analysis using model of Altman Z-Score but as of now I can perform
calculation upon it. It can be criticised that, all the calculations like financial ratios and Altman
Z-Score require more timings. Further, it is the time consuming research and reduce overall
efficiency of my to complete the study. In addition to these all, after making computation it is
quite typical or complex for making broad understanding about the concepts. Moreover, it can be
criticised that due to this reason, for making analysis and deriving business performance within
industry of these organisations is little complex.
RECOMMENDATIONS
From the present report it can be said that several external environment factors affect to
the industry and companies such as ASOS, JD Sports and Sports and Direct. In order to reduce
negative affects and boost up positive impact the management needs to frame effective business
strategies which lead to increase performance in the apparel segment. It can be recommended to
27

the JD Sports management that, it needs to use effective employee retention policies within
workplace. The reason is that, it supports to retain existing employees in the company for long
term by which employee turnover reduces up to the larger extent. Apart from this, ASOS
business entity has the lower NP ratio and the worst liquidity position at the end of FY 2016.
Further, ASOS should work and use strategies in order to boost up capabilities for meeting the
short-term debts. In the competitive market of UK's apparel segment, Sports Direct and JD
Sports businesses are not able to utilise total assets and inventory respectively. Further, it can be
suggested to these both the management that, they should give training to the workforce in order
to utilise stock and total assets within enterprise which helps to boost up revenue at the year
ending.
In addition to this, due to having the highest debt to equity ratio by Sports Direct firm at
the 2016 fiscal year ending, it can be advised that, it needs to boost up the profitability by which
it not needs to take more debt from external parties. Along with this, it should prefer equity share
financing for raising capital which lead to support the entity in terms of declining the debt to
equity ratio.
CONCLUSION
It can be summarised from the present study that, several numbers of the macro
environment elements affect to the businesses of UK's apparel industry like ASOS, JD Sports
and Sports Direct. Those elements which create negative and positive impact are such as
political, economic, socio-cultural and technological etc. In addition to this, according to the
porter's five forces model, majorly five aspects create huge impact on the apparel industry by
which its organisations also affect up to the larger extent. It can be concluded from the financial
ratio analysis that, Sports Direct firm able to generate the highest net profit at the end of
accounting year 2016 in comparison to other firms. On the basis of debt to equity ratio business
performance in the apparel industry of Sports Direct is the worst. Furthermore, JD Sports
business enterprise able to generate the highest revenue at the year ending 2016 with the use of
total assets as well as stock.
Beside this, employee turnover ratio is the lowest in Sports Direct business entity which
is 16.72% by which it can be said that it performs well in apparel industry of UK economy. As
per the Altman Z-Score it can be ascertained that, all the companies of apparel sector have this
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score more than 3. Moreover, it can be clearly indicated that, any of the company among ASOS,
Sports Direct and JD Sports not come under the issue of bankruptcy within relevant industry.
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Online
ASOS SWOT Analysis, USP & Competitors, 2017. [Online]. Available through:
<http://www.mbaskool.com/brandguide/lifestyle-and-retail/12876-asos.html> [Accessed
on 31st July 2017].
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