Ratio Analysis of

Rozana Al Shaban

Abu Dhabi University, 1061582@students.adu.ac.ae

Supervised by:

Professor Haitham Nobanee

Abstract

This paper will discuss ratio analysis and how these ratios can affect the effectiveness and

profitability of the company. This report will also discuss how sustainable activities can help

the company increase its value and revenues. Also, this analysis will be performed on

Christian Dior, and the data used was obtained from Yahoo finance. After analyzing the

ratios of Christian Dior, it can be said that the company is using the most of their resources to

be effective and efficient in their financial activities.

Introduction

Christian Dior SE (CDI.PA) is a French luxury brand that was founded in 1946 and is now

considered one of the most popular and luxurious brands in the world (de Carteret, n.d.). This

brand produces and sells bags, cosmetics, skincare, perfumes, clothes, shoes, and watches.
This report will discuss and analyze the financial ratios that were generated during the years

2016 until 2019.

Ratio analysis, also known as financial statement analysis, is a technique where different

users can examine the company’s ability to convert assets, accounts into cash and

productivity (Bloomenthal, 2020). The results of the ratio analysis allow the managers at the

company to overcome any hardship they might face that can be affected by or affect the

financial activities of the company. Also, the ratio analysis is done to better inform possible

stockholders in a way that is straightforward and not filled with inadequate statistics

(Overview of Ratio Analysis, n.d.)

Numerous companies have been seen to incorporate sustainability practices into their

business activities. These practices are set to minimize the company’s effect on the

community, environment, and economy. However, in some businesses, sustainability

practices have yet to be incorporated into the fiscal activates of the company (Al-Mahmoud

& Nobanee, 2020). The sustainable activities that have been incorporated into the business

have shown to improve the financial activities and the worth of the resources of the company

(Al Nuaimi & Nobanee, 2019). A way to integrate sustainable activities into their operations

is by adopting a concept called “Green Finance”, which is when all the parties involved in

producing goods and services in a way that is mindful of the harm it might do to the

environment (Al-Sheryani & Nobanee, 2020)

Data and Methodology

The financial data of the company Christian Dior was obtained from Yahoo Finance to

analyze the ratios and figure out the company’s financial activity and liquidity. The data is

from the company’s income statement and balance sheet for over 4 years. All the numbers are

in thousands.
Table 1: Financial data of Christian Dior

All numbers in thousands, Source: Yahoo Finance

The data required to perform the ratio analysis must be obtained from the company’s balance

sheet and income statement. The above table shows the financial data of Christian Dior. It

can be seen that over the years, some accounts were rising gradually, and other accounts

would rise for a few years, reach a peak, then fall.

Results and Discussion

Table 2: Liquidity ratios of Christian Dior
 Current Ratio
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2019 2018 2017 2016

Figure 1: Current ratio of Christian Dior

Quick Ratio
1.20

1.00

0.80

0.60

0.40

0.20

0.00
2019 2018 2017 2016

Figure 2: Quick ratio of Christian Dior

 Cash Ratio of Christian Dior
0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00
2019 2018 2017 2016

Figure 3: Cash ratio of Christian Dior

The liquidity ratio is a ratio that shows the company’s ability to accomplish the short-term

goals of the company (Bloomenthal, 2020).

 The current ratio over the years had been over 1.

 The quick ratio in the year 2016, 2018, and 2019 was recorded to be under 1, but in 2017 they

reported that it was over 1.

 The cash ratio over the years had been under 1.

These results mean that Christian Dior had been able to use their finances in a way that

allowed them to accomplish their immediate goals, and they have been able to convert their

assets into cash in a more efficient way (Hayes, 2019).

Table 3: Activity ratio of Christian Dior

 Inventory Turnover
1.40

1.35

1.30

1.25

1.20

1.15

1.10

1.05
2019 2018 2017 2016

Figure 4: Inventory turnover of Christian Dior

Receivable Turnover
17.50
17.00
16.50
16.00
15.50
15.00
14.50
14.00
13.50
13.00
2019 2018 2017 2016

Figure 5: Receivable turnover of Christian Dior

 Total Asset Turnover
0.61

0.60

0.59

0.58

0.57

0.56

0.55
2019 2018 2017 2016

Figure 6: Total asset turnover of Christian Dior

The activity ratio is used to determine how successful the company is at transforming the

assets into income (Kenton, 2020).

 The inventory turnover over the years is shown to be over 1.

 The receivable turnover is shown to be over 10 throughout the years.

 The total asset turnover over the years is also shown to be over 1.

These ratios indicate that Christian Dior had been successfully converting their assets into

income over the past 4 years (Kenton, 2020).

Table 4: Debt ratio of Christian Dior

 Debt Ratio
0.64

0.62

0.60

0.58

0.56

0.54

0.52

0.50

0.48
2019 2018 2017 2016

Figure 7: Debt ratio of Christian Dior

Times Interest Earned Ratio

70.00

60.00

50.00

40.00

30.00

20.00

10.00

0.00
2019 2018 2017 2016

Figure 8: Times interest earned ratio of Christian Dior

Table 5: Profitability ratios of Christian Dior

 Return on Equity
0.30

0.25

0.20

0.15

0.10

0.05

0.00
2019 2018 2017 2016

Figure 9: Return on equity of Christian Dior

Return on Total Assets

0.04

0.03

0.02
2019 2018 2017 2016

Figure 10: Return on total assets of Christian Dior

 Profit Margin
0.06

0.06

0.05
2019 2018 2017 2016

Figure 11: Profit margin of Christian Dior

The profitability ratio is used to “calculate the company’s capability to generate earnings

relative to the revenue, operating costs, balance sheet assets, and shareholders’ equity”

(Kenton, Profitability Ratios Definition, 2020).

 The return on equity ratio over the years had been less than 1, but when converted to

percentages, the ratios are more than 10%.

 The return on total assets ratio over the years had been less than 1, but when converted to

percentages, the ratios are less than 10%.

 The profit margin ratio over the years had been less than 1, but when converted to

percentages, the ratios are less than 10%.

The percentages of the profitability ratios showed that Christian Dior had been using most of

their resources to increase the income and worth of the company in the market (Corporate

Finance Institute , n.d.)

Conclusion

In conclusion, the ratio analysis had been used by managers and other users outside a

company to analyze the company’s ability to convert resources and accounts, and
productivity (Bloomenthal, 2020). Also, by adding some sustainable practices into their

operations, any company can increase their productivity and their worth in the market. After

analyzing the ratios of Christian Dior, it can be said that the company is using the most of

their resources to be effective and efficient in their financial activities.

References

de Carteret, I. (n.d.). BRAND FOCUS: THE HISTORY OF DIOR. Retrieved from Bagista:
https://bagista.co.uk/blogs/news/brand-focus-the-history-of-dior
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https://www.investopedia.com/terms/r/ratioanalysis.asp
Kenton, W. (2020). Profitability Ratios Definition. Retrieved from Investopedia:
https://www.investopedia.com/terms/p/profitabilityratios.asp
Al Nuaimi, A., & Nobanee, H. (2019). Corporate Sustainability Reporting and Corporate
Financial Growth. Retrieved from SSRN: https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=3472418
Al-Mahmoud, M., & Nobanee, H. (2020). Sustainability and Accounts Receivable
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3538711
Hayes, A. (2019, May 13). Liquidity Ratio Definition. Retrieved from Investopedia:
https://www.investopedia.com/terms/l/liquidityratios.asp
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https://www.investopedia.com/terms/a/activityratio.asp
Corporate Finance Institute . (n.d.). Profitability Ratios. Retrieved from Corporate Finance
Institute : https://corporatefinanceinstitute.com/resources/knowledge/finance/
profitability-ratios/
Overview of Ratio Analysis. (n.d.). Retrieved from Lumen Boundless Finance:
https://courses.lumenlearning.com/boundless-finance/chapter/overview-of-ratio-
analysis/
Al-Sheryani, K., & Nobanee, H. (2020). Green Finance: A Mini-Review. Retrieved from SSRN:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3538696