Introduction

Investors and other external users of financial management information will often need to measure the performance and financial health of an organization. This is normally done in order to evaluate the success of the business, determine any weaknesses of the business, compares current and past performance with industry standards.

Financially stable organizations are desirable, because a financially stable business is one that successfully ensures its ability to generate income for investors and retain or increase value.

The two companies that I will be comparing in this project are Mulberry Group PLC and Ted Baker London. Both of these companies are competitors in the same industry. I will be using the information from their 2015 financial statements to evaluate the management performance of these companies, such as financial ratios, analyzing companies Beta, expected returns, capital structures and dividend policies.

Mulberry Group plc and Ted Baker group information

Mulberry is an English design company renowned worldwide for its craftsmanship and quality. The brand’s backbone is an extensive line of luxury fashion bags for men and women that combine stylish stand out design with the finest leathers and detailing. In addition to leather goods, Mulberry’s product range includes women’s wear, accessories and footwear.

The group trades internationally either directly through its own retail stores or through direct wholesale customers and partners.

Ted Baker London is best known for its glamour, style and uniqueness in designs. Ted Baker has introduced novel trends in men’s and women’s clothing and accessories which has laid down the foundation for high-end fashion in Britain. Ted Baker is a British lifestyle brand and was established in 1988, starting from specializing in men, women clothing accessories and shoes. The brand’s primary focus has always been on designs and quality, upon which the company has never been compromised.

Management Performance ratios

Every business’s goal is to generate profit and managers must ensure that shareholder’s funds are used more efficiently in order to achieve that goal.

There area many different methods than can be used alone or together to help investors assess the financial stability of an organization. One of the most common methods is financial ratio analysis. The basic ratios include five categories: profitability ratios, liquidity ratios, efficiency ratios, and shareholder’s ratios.

Gross profit margin measures how efficiently a firm uses its materials and labor. It shows us how much money left from product sales after all direct manufacturing cost have been paid. This ratio is important particularly in retail sector because it is a key indicator to investors how healthy the company actually is. It shows how efficiently the firm can produce and sell it’s products.

Mulberry	2013 £’000	2014 £’000	2015 £’000
GPM

Ted Baker	2013 £’000	2014 £’000	2015 £’000
GPM

We can see that Mulberry and Ted Baker both had similar gross profit margin in three years with the company making slightly smaller gross profit of £60 on every £100 of revenue in 2015. It could be due to lower selling prices or weaker control over the cost of sales. The gross profit margin is higher than operating profit margin because it takes into account only revenue and cost of sales but on overall it is a good gross profit margin for both companies. Mulberry’s high gross profit margin could be due to increased sales in their own stores and efficiency achieved in their UK factories in Somerset. Much of Ted Baker’s recent growth can be due to an overseas expansion. The company opened additional stores in Hong Kong, Germany, France, China, North America, Japan and Netherlands. Also Internet sales rose by 46,9%. But small decrease in Ted Baker’s could be due to a change in sales mix between wholesale and retail sales. Both companies outperformed their peer group Next where gross profit margin was only 33,6%. Ted Baker’s and Mulberry’s gross profit margin of 60% in 2015 is an indicator that manufacturing cost is firmly under control.

The operating profit margin shows how much revenue has been left after operating cost have been paid and how much is available to cover non-operating cost such as interest. This ratio is very useful as it helps to understand how strong the operations are. If it starts to decline the company will have to find a new way to generate income.

Mulberry	2013 £’000	2014 £’000	2015 £’000
OPM

Ted Baker	2013 £’000	2014 £’000	2015 £’000
OPM

The weakest performer appears to be Mulberry with OPM fallen down to 1% in 2015, it shows us that a net profit of £ 0,01 is made on each 1£ of sales. The lack of improvement in OPM can be due to an increase in selling and distribution cost and administrative expenses reflecting in net retail costs for stores opened and additional senior

management, which was followed by reduction in advertising cost. Also in addition Mulberry sold leases of two stores and generated an exceptional profit on that. Ted Baker’s OPM had slightly improved since 2014 with a better results of 12% comparing to 2013 representing a profit of £0,12 is made on each £1 of sales. It could be due to higher selling prices or better control of operating cost. Online peer BOOHOO.COM has an operating margin of 8%, which is an indicator that Ted Baker has significantly good results.