Report on Financial Analysis

Running head: FINANCIAL ANALYSIS
Financial analysis
Name of the student
Name of University
Authors note

FINANCIAL ANALYSIS
Table of Contents
Introduction:....................................................................................................................................3
1. Business and strategic analysis:...............................................................................................3
Analysis of economy:..................................................................................................................3
Industry analysis:.........................................................................................................................5
Competitor of the selected company:..........................................................................................6
Porter’s Five Forces analysis of the industry:..............................................................................6
Competitive and corporate strategy of selected organisation:.....................................................8
2. Accounting Analysis..................................................................................................................10
3. Financial Analysis.....................................................................................................................13
Cross-Sectional analysis............................................................................................................13
Times Series Analysis................................................................................................................17
5. Recommendation.......................................................................................................................20
Conclusion.....................................................................................................................................21
References list:...............................................................................................................................22

FINANCIAL ANALYSIS
Introduction:
The report is prepared to demonstrate the understanding of the macro economic factors
affecting the operations of company and industry as a whole using PEST analysis. Company that
has been selected for the explanation is Michael Hills and Lovisa Holdings limited that operates
in fashion retail sectors. Michael Hills is a retail jeweler chain operating in many countries such
as Australia, New Zealand, United States and Canada (Michaelhill.com.au 2018). It provides its
customers with exquisite range of diamond jewellery, diamond engagement rings, bracelets,
earrings, watches and charms. Lovisa was established in year 2010 and exploded in fashion
accessories, operates through 300 stores worldwide and have established themselves in fourteen
countries (Lovisa.com 2018). Analysis of industry to which these two companies belongs is done
by using Porters five forces. Moreover, later part of report explains competitive strategy of
company, its growth potential and key success factors.
1. Business and strategic analysis:
In this section, analysis of fashion industry of Australia is done by explaining several
macro-economic factors using PEST analysis.
Analysis of economy:
Political factors- Legal issues of any particular country have considerable impacts on
fashion industry and such issues involve permission grants and rewards available to new fashion
designer. Fashion retailers in Australia such as Michael Hills and Lovisa Holdings are currently
facing with issues pertaining to no protection for unregistered designs. However, the reciprocal
rights governing copyrights in fashion industry will enable retailers to enjoy same level of

FINANCIAL ANALYSIS
copyright protection. Changes in copyright will assist the mass produced artistic works will
enable them to enjoy considerable longer period of protection for their copyright (Fenna 2015).
Economic factors- Companies operating in fashion industry is influenced by wide range
of economic factors. Strategy of retailers is impacted to considerable extent by the amount of
disposable income of consumers. Product quality of fashion retailers might be enhanced since
price factor simply scoops in higher profits. The development of fashion clusters across major
cities has resulted due to shift in manufacturing practices and geographical displacement of
fashion industry. Development of fashion industry in Australia has been supported by lower
interest rate and lower inflation rate of country. Domestic economic of country is driven by
slump in oil price and trend of cutting interest rates (Gardetti and Torres, 2017). Therefore, the
stable position of Australian economy will help in supporting the growth of fashion industry and
thereby affecting the performance of both the companies. One of the ongoing real estate trends
for retail floor space for fashion retailers is influencing fashion industry. This has resulted in
increasing number of retailers for selecting nontraditional locations for their premises.
Social factors- Social factors driving change in fashion industry in Australia involves
lifestyle trends, consumer trends, media options, branding, demographics, ethical issues and
advertising image. The attitude of people towards fashion in Australia is changing and people are
becoming more fashion conscious and this has a direct impact of fashion retailer’s corporate
strategy. People are brainwashed by the advertising campaign of companies and they inclination
of embracing fast fashion has considerable influence on retail fashion business (Hatfield et al.
2015).

FINANCIAL ANALYSIS
Technological factors- The shopping experience of customers and the corporate strategy
of fashion retailers are shaped by the advancement in technology such as video content, high-
resolution imagery, reviews and recommendations of products along with detailed descriptions.
Many fashion retailers in Australia have commenced their online journey by formulating new
strategies. Evolvement of technology is witnesses at rapid rate both from perspective of retailer
and consumers (Chan et al. 2017). It is required by Australian fashion retailers to make
investment and embrace online shopping by making planning and proper investment in
development of new operating model. Such model will help in accommodating rapid
technological development and meeting the increasing needs of sophisticated consumers.
Industry analysis:
Fashion and jewellery industry is one of the rising industries, which is posed with the
glittering future and sustainable growth owing to their magnitude of service. Since decades,
heritage luxury jewellery brands are the market leaders in their respective organisations. With
global sales figure of 148 billion euro, fashion and jewellery industry is growing at 5% to 6%
annual growth rate (Soni and Gulati 2016). According to the Panayiotou and Katimertzoglou
(2015) there has been certain lag in the jewellery industry to cope up with the present market
demand, however, depending upon the brand like Michael Hills, fashion industry is gaining
momentum. Among many players in the jewellery and fashion industry, Michael hills, is one of
the best organisations, which is popular for production of appealing and distinct jewelleries since
1979 (Michaelhill.com 2018). With their in-house master of craftsmanship and dedicate team of
designers, the brand has gained much amount of popularity. For this report Michael hills, is the
selected organisation, which is known for their explicit craftsmanship, wide range of jewelleries
and global vision. Owing to their outstanding features, the brand has topped the Australian

FINANCIAL ANALYSIS
market and presently it serves countries like New Zealand, Canada, United States and other with
their 296 retail chain around the world (Parsons and Wilkinson 2015). Thus, it can be considered
as the top performer in the middle range firms in the case of jewellery and fashion industry that
enjoys market share of 6.6% with market capitalisation of 492.05 million USD (Kennedy 2015).
Competitor of the selected company:
Michael Hills is one of the market leaders, when it comes to the explicit jewelleries along
with exclusive diamond collection that adds a lot to the fashion sense of the wearer. Being one of
the market leaders, Michael fashion has many competitors, however, among them; Lovisa
Holding Limited can be acknowledged as the main competitor of the selected organisation.
Lovisa was introduced back in 2010 and since then it has transformed itself to become where it is
now. For instance, it has 300 retail stores around countries like Australia, Singapore, South
Africa, Australia and other countries (Kieser 2018). With its wide range of products, and
exclusive services, Lovisa has become a market leader in the Australia and other countries that
possess great potential to prosper in future. According to the Live Stock Exchange Rate, price of
the products from this brand is rising, which showcase demand of Lovisa is rising at a steady rate
(Perez 2015).
Porter’s Five Forces analysis of the industry:
Porter’s Five Forces analysis is an approach to find out the competitiveness of a given
industry (Anton 2015). In this report fashion and jewellery industry has been considered for
discussion and the Porter’s Five Forces analysis for the given industry is as follows:
Buyer power – Fashion and jewellery industry has little amount of bargaining power due
to the fact that there is large amount of players in the market. Price is determined depending