In this report we are comparing two of the biggest clothing companies H&M and INDITEX by using profitability ratios for making a financial statement analysis. We will state opinions in regard to the previously analyzed figures and comment on them.
The overall profitability (ROI) is 23,01% in 2011 and 24,18% in 2012. So the ROI is showing an increase in the period analysed because of the increasing PMR (from 18,29% to 19,55%)and ATOR decreases slightly (1,26 to 1,24). The earning capacity analysis (PMR) shows a positive development. The main reason for that is an increase in the turnover at reduced costs of goods sold and implicitly an increase in the operating profit. This is contributing to a higher overall profitability.
The capital adjustment analysis (ATOR) shows a very slight decrease in figures . The ROE is 34,32% in 2011 and 36,91% in 2012 and it’s also above the risk and shows an increase during the whole period. The ROE is higher than the ROI which means they are earning on loans. Return on debt (ROD) is decreasing which is not satisfactory but the company is still earning money, because in this case the net interest expenses are in fact incomes so therefore the figure has to be as high as possible. This means that the company relies more on short term debts (no interest has to be paid). Comparative analysis of the profitability ratios of INDITEX and H&M
As we can see H&M is better at producing a profit from their investments than INDITEX. The table shows that the PMR of INDITEX is higher than H&M but still their ROI is lower . The reason is that the total assets of INDITEX are much higher than H&M’s , therefore INDITEX’s ATOR is lower in comparison with the other company. So H&M are creating a better profit from their assets (ROI) because they are more better at creating turnover from their assets (ATOR). The return on equity (ROE) shows the income the company generates to its owners and it is good for both of the companies, but H&M has a 14% higher figure than INDITEX. This is because there is a big difference between their equities, INDITEX – 8,481,861€ and H&M – 5,014,296 €. Both companies have bigger interest incomes than expenses so H&M’s ROD is better than INDITEX’s.
Overall both companies’ key figures are on a very satisfactory level , but H&M is better at producing profit and turnover from the investments made in resources as well as at generating return to the company’s owners.
