Ananda Kundu

HOLLY FASHION Jesie Lyn Jamoles

Maribel Mangalindan
Mayoni Lopez
RATIO ANALYSIS Ramses dela Cruz
Rolielle Bagon
OUTLINE
 Company Profile
 Industry Profile
 Challenges & Underlying Challenges
 Financial Report & Interpretations
 Recommendations
 Conclusion
COMPANY & INDUSTRY
PROFILE 1982
HOLLY FASHION (HF)
Small apparel maker Cherry Hill, New Jersey
 Not publicly traded
 Estimated stock value between $55 –$65 per share “quality and “in” fashions”
FOUNDERS

William Hamilton John White

 Reserved & introspective  Outgoing & forceful
 Extremely creative  Contributed important merchandising
 Flair for merchandising & trend & marketing ideas
spotting  Assumed COO duties
FINANCIAL REPORT
Income Statements
1400.0
1305.0
1236.0
1200.0 • Sales is increasing
985.0
1040.0
978.8
over the years along
1000.0 928.2
with the Expenses
800.0 748.6 774.8 • 97% of the Total Sales
600.0
goes to the Expenses
• Cost of Sales & Net
400.0
Income shows slow
200.0 ROI
29.5 27.0 31.9 35.2 • Net Income cannot
0.0
1993 1994 1995 1996 sustain the business
Sales Cost of goods Gross margin Administrative Depreciation
EBIT Interest EBT Taxes Net income
CHALLENGES
BORROWING CONCERN
 Retirement of all long term debt
 Difficulty in maintaining stable
bank relationships
 Strict federal regulations on
business loans
 Unreliable & time-consuming
debt-financing
 Reduced financial flexibility
 Low cash position
WORKING CAPITAL
CONCERN
 Excessive inventory
 Expensive cost for the build of a
distribution center
 Overdue payments (40% of
account receivables are over 90
days over due)
 Trade discounts rarely taken
 Discounts are not generous
UNDERLYING
CHALLENGE
HAMILTON &
WHITE’S
DIFFERENCES
• Disagreement on some
business decisions made
• Differentiation on
marketing &
merchandising strategies
• Different account
receivables collections
ideas
 HF BALANCE SHEETS
Assets Liabilities & Net Worth
600.0 600.0

500.0 480.1
455.6 500.0 480.1
455.5
400.0 373.6
349.3 400.0 373.5
349.3
300.0
224.8 300.0
193.4 191.9
200.0 175.1
153.2 158.9
117.0 121.1
200.0
100.0
40.4 51.9 38.6 120.9 120.3
10.6
100.0 83.5 90.7 86.2 84.2
0.0
1993-12.0 1994 1995 1996 53.8 54.7
-23.4 -37.0
-51.4
-100.0 0.0
1993 1994 1995 1996
Cash Receivables Inventory
Other current Current assets Gross Fixed Accounts Payable Debt Due Accruals Current liabilities
Accumulated depreciation Net Fixed Total Assets Long-term dept Common stock Retained earnings Total L&NW

• Inventory is increasing over time but cash flow is depleting • Long Term Debt & Account Payables are increasing
• Increasing trend of Accumulated Depreciation • If inventory is disposed, it could have increased their Cash Asset
• Account Receivables are getting higher over time
RATIO ANALYSIS
Current vs Quick Liquidity Ratio Leverage Ratio
4 3.8 45.0
3.7 3.6 41.1
3.5 3.4 40.0 37.7
35.3
35.0
3
30.0
2.5 2.4 2.4
25.1
2.0 25.0
2 1.8
20.0
1.5 15.7
15.0
11.6
1
10.0 8.0 8.5

0.5 5.0

0 0.0
1993 1994 1995 1996 1993 1994 1995 1996

Current Quick Debt(%) Times Interest Earned

Industry Average:  Above Industry average means the company Industry Average:  Above industry average leverage ratio
Current Quick is investing too much of its resources in Current Quick means higher financial risk and least
2.6 1.6 the working capital of the business, which 41 7.4 favorable to be approved on a loan
1.7 0.8 may be more profitable elsewhere 57 3.9
1.3 0.6 71 1.3
RATIO ANALYSIS
Activity Ratio Profitability Ratios
70.0 30.0
62.0
25.5 24.9 25.0
60.0 56.0 25.0 24.0
55.0
51.0
50.0
20.0

40.0
15.0
30.0 30.1 31.0 31.0 13.0
29.3 29.0
30.0
25.0 10.7
22.0 21.8 10.0 8.4 8.4
20.0 6.8 7.2 7.2 7.0 7.0
6.0 6.1
4.8
5.0
10.0 6.4 6.4 4.8 3.0 2.6 2.6 2.7
2.8 2.8 2.7 2.7
0.0 0.0
1993 1994 1995 1996 1993 1994 1995 1996

Inventory Turnover (CGS) Fixed Asset Turnover Total Asset Turnover Gross Margin Net Profit Margin Return on Equity (%)
Average Collection Period Days Purchases Outstanding Return on Total Assets (%) Operating Margin (%)

Industry Average: Industry Average:

Inventory Turnover: 3.5 6.0 8.1 Gross Margin: 28 26 24
Fixed Asset Turnover: 30 29.3 30.1 Net Profit Margin 4.2 3.1 1.2
Total Asset Turnover: 2.8 2.8 2.7 Return on Equity 27.3 19.5 7.8
Average Collection Period: 56 55 51 Return on Total Assets 11.8 8.7 3.4
Days Purchases Liability: 25 22 31 Operating Margin 9.9 7.2 3.1
MARKET TO BOOK VALUE

M/B = Market Capitalization

____________________
Net Book Value (Total
Assets – Total Liabilities)

= $55/ 480.1 – 120.3

= $55 / 359.8

= 0.158 Low Market to Book Ratio =

Stock is UNDERVALUED
RECOMMENDATION

TIMELY &
GENERATE STRATEGIC
WORK TOGETHER
INNOVATIVE IDEAS COLLECTIONS OF
RECEIVABLES

SHARE IDEAS DISPOSE OLD REDUCE EXPENSE

DRIVEN BY FACTS INVENTORY ON COST OF GOODS
CONCLUSION

HIRE FINANCIAL AVOID

MANAGERIAL
ANALYST OR UNNECESSARY
COMPETENCY
CONSULTANT SPENDING

SET ASIDE FINANCIAL REPORT IS

MAINTAIN DIFFERENCE & EVIDENCE ON CURRENT
BUSINESS STATUS & THE
BUSINESS FOCUS ON WHAT’S EFFECTIVENESS OF
RELATIONSHIPS BEST FOR THE STRATEGIES
BUSINESS IMPLEMENTED