Detailed Financial Analysis Report of Zalando Company

This report offers a detailed financial analysis of Zalando, a fashion and lifestyle company. It begins with an examination of the company's accounting information system, including manual, legacy, and AI-driven systems, and how these systems support financial statement preparation and reporting. The report then analyzes Zalando's revenue recognition processes, covering methods such as sales basis, percentage of completion, and the updated revenue recognition method. Furthermore, it provides an in-depth analysis of the balance sheet's liability side, including current, non-current, and contingent liabilities, and the application of key financial ratios. The analysis also includes the company's compensation plans and the leasing environment, providing a comprehensive overview of Zalando's financial position and operational strategies. The report concludes with a summary of the key findings and their implications for the company's financial health and future performance.

Company’s business
financial analysis report

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Detailed examination and evaluation of the accounting information system of the company
in addition to the financial statements of the organisation..........................................................1
2. Detailed identification, analysis, and evaluation of the revenue recognition process and its
structure that the company follows..............................................................................................3
3. Detailed analysis of the balance sheet’s liability side and calculation of some important
ratios and its interpretations in a systematic and sequential manner...........................................4
4. Identification and analysis of the system of compensation and plans that are related with the
compensation of stock which the above mentioned company plans...........................................6
5. Detailed analysis and evaluation of the lasing environment that is prevailing in the current
scenario and different types of lease............................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial analysis is one of the most important as well as crucial aspect for each and
every business unit that is operating in the current environment that is highly dynamic an
competitive in nature and thus it helps the company to grow and prosper in the market by
evaluating financial position of the company in an effective and efficient way (Abolfathi and
Taebi, 2020). Zalando is a firm that is geographically located in Berlin, Germany and deals in
fashion and lifestyle products and as the company is operational since a pretty long time it has
thus captured a large amount of share in the market all over the globe as compared to other
competitors that are prevailing in the similar market situation. In this report there is a brief
discussion about accounting information systems and revenue recognition process and its
structure that the organisation uses in the long run. Apart from this the report also covers analysis
of different types of ratios that possess a lot of value in the present circumstances from the firm’s
point of view. Further in this report there is also a brief discussion about leasing environment of
the enterprise.
MAIN BODY
1. Detailed examination and evaluation of the accounting information system of the company in
addition to the financial statements of the organisation
Accounting information system is a framework that helps a business to collect the
information, store that data, manage and process relevant information from the data, and finally
make a report so that all the stakeholders and the employees of the company can use it so as to
do a detailed analysis of all the aspects and that too within a limited period of frame so that it can
add to the value of the enterprise. The firm that is Zalando takes this aspect very seriously and
thus gives a lot of importance to it and employs best of their staff in the job of collecting
information so that the further processes can be performed in an effective way which can help it
to increase its profitability in the industry in which it is operational. As it is of high value there
are some types of it and all of them are discussed below in detail with the context of the
organisation that is mentioned above-
 Manual systems- It is a system that is mainly used by small companies or start-ups in
which the capital investment is low as it is convenient and also reduces the amount that is
invested in it. Zalando also used it in early days since the firm was not that much popular

and making profits was the only aim of the company so that it can sustain in the market
for a much longer time period and this system helped it to cut down costs (Agrawal and
Lakshmi, 2020).
 Legacy systems- In this system a company tends to obtain information as well as
statistics from the past data so that it would not repeat the mistakes done in the past as it
is also a very successful method as it is old, tried, and tested approach. Zalando uses this
system very frequently and it has also proved very beneficial for the enterprise as it has
helped the company to drastically increase the value of it in the market.
 Replacement of the legacy system- The above system is currently related by new set of
technologies that use artificial intelligence as its tool so that it can reduce minor errors
too that is possible if all the aspects are analysed and evaluated by an individual. New
and advance technology help an organisation to analyse all the aspects that can directly or
indirectly affects the working of the company so that necessary rectifications can be
made within a limited time frame. Zalando also uses this system as it is well placed in the
market and is not worried about the funds as it is constantly profitable since many years.
Zalando mainly uses the last system which is replacement of the legacy system as it wants to
cut down minor mistakes too that can happen if an individual does all the analysis of their own
and this it is the main reason behind the profitability of the company since many years.
Preparation of the financial statements of Zalando- Financial statement is an important
tool as it involves various factors that possess a lot of value for every firm as it involves mainly
the balance sheet of the company which shows the true and fair picture of the enterprise and also
shows its performance so that comparison can easily be done from the past facts and figures.
Zalando prepares its financial statement in a very precise manner as it firstly evaluates all the
revenues that the firm has generated over a period and after that it sums up all the expenditure
and after that it prepares a statement from the above evaluated aspects so that it can help the firm
to grow and prosper in the industry (Azhar and Ramesh, 2017).
Preparation of closing as well as reporting activities- It is a very crucial activity as it helps
in analysing the true position of the firm and also the performance of it in the long run with the
help of necessary and relevant accounts. Zalando prepares all the accounts that are appropriate
for closing and reporting activities in an accurate and precise manner so that nothing can be
missed and thus improving the company’s positing and performance in the market.

2. Detailed identification, analysis, and evaluation of the revenue recognition process and its
structure that the company follows
Revenue recognition is a principle which is generally accepted accounting principle
(GAAP) and it works according to it in which it firstly identifies a condition that is specific in
nature through which revenue is generated so as to analyse a necessary as well as an appropriate
accounting treatment for it so that it can prove beneficial for the firm in the long run. It is a
process that is divided in various steps so that all can be understood and then identified in detail
so as to provide organisation with necessary equipments that are crucial in performing well in the
market as well as is helpful in sustaining in the industry (Barbier, 2020). The firm that is
mentioned above also knows the importance of this aspect and thus gives a lot of value to it and
performs all the steps in a precise manner so that it can help the firm to grow and prosper. Below
are all the steps analysed and evaluated in a systematic manner with reference to the firm-
 Sales basis method- It is a type of method in which revenues are recorded at the time of
sales and thus helps the company to record all the transactions in an appropriate way. The
firm which is Zalando also used this method when sales of the enterprise were not that
much and it has also proved very helpful for the firm to increase its value.
 Percentage of completion method- It is a method in which revenue is recorded after the
completion of the task so that all the necessary allocation of funds can be done in a
precise manner. Zalando use this method alternatively for the projects that carriers a lot
of value as it makes the project time bases which proves beneficial in a task that has to be
finished within a limited time period (Butėnas, 2018).
 Completed contract method- In this method revenues are recorded after the contractor
is satisfied with the work that has been performed by the company and it is very
beneficial in improving the image of the firm in the industry. Zalando uses this method
for projects that are important in nature so as to ensure that all the work has been
performed as per the expectations of the clients and that too within a limited time frame.
 Cost recoverability method- It is a method in which revenues are recorded after the
costs are recovered completely so that it can help to improve the revenues of the
enterprise. Zalando also uses this method alternatively so as to ensure that all the
activities are directed towards the achievement of a single goal.

 Instalment method- In this method revenues are recognised after all the instalments are
recovered and the firm that is Zalando also uses this method in some of its parts so that it
can help the company to prosper in the market.
 Updated revenue recognition method- It is a method which is an updated version of
revenue recognition method and basically focuses on contracts of the customers and
different aspects that are related with it in an appropriate manner and there are five steps
involves in it that are explained below-
Step 1- Identification of the contract with customer either oral or written
Step 2- Identification of the obligation of performance in the contract
Step 3- Evaluating the value of the contract (Dębniewska, Skorwider-Namiotko and Wojtowicz,
2018)
Step 4- Allocation of the value of the contract after analysing obligation of the performance
Step 5- Recognition of the revenue just after the completion of the contract obligation
In Zalando sales revenue process of recognition is followed since it records its
transactions in the books of accounts after the sales has been made.
3. Detailed analysis of the balance sheet’s liability side and calculation of some important ratios
and its interpretations in a systematic and sequential manner
Balance sheet is one of the most crucial aspect for each and every firm that is operation in
the industry as it helps in analysing and evaluating the true and fair view of the financial position
of the company so that performance of each factor can be elaborated and analysed so that if there
is a need of further rectification in any part it can be done without wasting any time and thus
adding to the value of the firm. Zalando is a firm which is well placed in the market and is
operating in a profitable side that helps it in sustaining in the market for a longer period of time
(Matuszak and Różańska, 2017). There are two parts in balance sheet that is liabilities and assets
as liability side includes all the expenditure that are incurred by a business firm and thus it is
further divided into various sub parts that are explained below in detail-
Liabilities side- There are mainly three parts of it that is current liabilities, non-current
liabilities, and contingent liability that are explained as follows-
 Current liability- It is a part of liability side that includes all the liabilities that are of
short term in nature which means it has to be paid off in a year or so and thus includes
accounts payable, short term debt, dividends payable, and accrued expenses.

 Non-current liabilities- These includes liabilities that are to be paid off in a longer time
frame which is generally more than one year in term and it includes deferred liability of
tax, bonds and mortgage payable.
 Contingent liabilities- It is a type of liability which will arise in the future but the
amount of that is generally not fixed and thus it is recorded at the time of payment.
 Bond valuation- Valuation of bonds are done by different firms using various techniques
that are prevalent in the current market situation but present value technique is the one
that is most commonly used by firms in order to value their bonds. Zalando also uses it in
an appropriate and accurate manner so that it can help it in raising its value in the
industry in which it is operational. There are different types of bonds according to their
maturity like convertible, non-convertible, hybrid bonds (Mukhibad, Kiswanto and
Jayanto, 2017).
 Valuations of shares- Shares are valued on the basis of different quantitative techniques
that are mostly used by companies in order to value their shares and Zalando also uses it
so that it can help it in increasing its capital value and the number of investors which can
prove beneficial in the long run.
Different ratios that carriers a lot of value in the current scenario for a firm like Zalando are
calculated and interpreted in a sequential manner so that it can help the company to grow and
prosper in the industry.
Particulars Formula 2018 2019
Current ratio Current assets /
current liabilities
2473.5/1613.7 = 1.53 2878/2106.7 = 1.36
Current ratio- It is a ratio that is very crucial as well as critical for each firm as it help
sin determining the short term paying capacity of the company by comparing the current assets
of the firm with its current liabilities. It can be analysed from the above that Zalando has
performed well in 2018 as it has 1.53 times its assets as compared to its liabilities but in the year
2019 it came down to 1.36 times but still it is pretty well placed in the market as compared with
other firms that are operational in similar market situation (Zaitsev, Kichigin and Korotkova,
2019).
Particulars Formula 2018 2019
Acid test ratio Quick assets / current 1537/1613.7 = 0.95 2779/2106.7 = 1.32

liabilities
Acid test ratio- It is a ratio which helps in analysing the paying off capacity of the
enterprise and it can be said that Zalando has done exceptionally well in 2019 as compared to
2018 as its ratio was increased from 0.95 in 2018 to 1.32 in 2019 (Parkinson, 2016).
Particulars Formula 2018 2019
Debt to total assets
ratio
Debt/ total assets 940/3288.4 = 0.29 620/3861 = 0.16
Debt to total assets ratio- This ratio helps in analysing and evaluation the level of debt
of the company as compared with its total assets and it can be seen that Zalando has performed
brilliantly in both the years but in 2019 it has managed to decrease its debt as the ratio has came
down from 0.29 in 2018 to 0.16 in 2019.
Particulars Formula 2018 2019
Times interest earned
ratio
EBITDA/ interest
expense
259.9/17 = 15.288 419.7/20 = 20.985
Times interest earned ratio- It is a ratio that helps in determining the earnings that the
firm is generating as compared with the interest expense and it can be said that Zalando has
managed to increase its earning subsequently as the ratio increased from 15.288 in 2018 to
20.985 in 2019 which proved beneficial for the company in the long run (Prasetiyani and Sofyan,
2020).
4. Identification and analysis of the system of compensation and plans that are related with the
compensation of stock which the above mentioned company plans
Compensation system- It can be both monetary and non-monetary according to the needs,
requirements, and demand of the company and there are different techniques that are used for
compensation and are explained below in detail-
 Salaries- It is the basic monetary expense for a firm that it gives to its employee’s mainly
on monthly basis and is regarded as one of the most important tool in the current scenario
and all of the firms use it including Zalando.
 Commission- It is a technique of compensation that is mainly used to increase sales
many folds and Zalando also uses it as in it a percentage of sales profit is given to an
individual (Rahmawati, 2018).

 Piece rate plan- It in works are divided in parts so as to measure the performance of each
employee so that payment can be made according and Zalando use it very often.
Stock compensation- It is a compensation system in which stock of the company is taken as
a base so that it can help the directors of the company to decide the amount of compensation that
has to be given. There are various sub parts in it which are explained below in detail-
 Restricted stock- It is the stock in which employees receive shares through purchase or
gift for the performance. It is done equally for the set of period for taking the rights of the
stock ownership.
 Post retirement benefits- It refers to the benefits which is included for the payment of
the employees in the benefit plan, pension plan, life insurance and post employment
benefits. There are various plans also which welfare benefit plans are (Roni, 2019).
5. Detailed analysis and evaluation of the lasing environment that is prevailing in the current
scenario and different types of lease
Leasing company is a one that provides physical assets or a service so that it can be used to
ensure that the clients are performing their best while using it in an impactful manner. It also
helps in fetching higher rate of return which subsequently helps in increasing profitability of the
company and with reference to Zalando it is explained below briefly-
Capital and operating lease- Both are very crucial for all firms as they are of long term in
nature and Zalando uses it in an appropriate manner so that it can fulfil all the aspirations of both
the client as well as of the company in the long run.
Absolute net lease- It is an aspect which includes every factor that impacts the performance
of Zalando in the market and thus it uses it in a very careful and precise way (Štefko, Jenčová
and Vašaničová, 2020).
CONCLUSION
From the above it can be concluded that there are various factors that are related with
accounting and its aspects which possess a lot of importance in the current market scenario and
the firm that is Zalando analyse and evaluates all these in a very cautious manner so that it can
help the company to grow and prosper in the present time.

REFERENCES
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