Financial Analysis of Victoria Secret Essay

INCOME STATEMENT ANALYSIS

Victoria Secret appears to be a profitable company. Victoria Secret is portion of L Brands whose runing income was at $ 211 million. up by $ 24 million from the last one-fourth. Specifically at Victoria’s Secret. gross revenues increased by 4 % to make 5. 4 billion but runing income decreased by 6 % to 1. 71 billion. It appears that Victoria Secret’s major disbursal was their Cost of Goods Sold. COGS. which totaled at 1. 3144 billion. The gross net income per centum as at February 2013 was 47. 87 % ( NASDAQ. 2014 ) .

BALANCE SHEET ANALYSIS

Assetss of Victoria’s Secret have steadily increased in the last three financial old ages. As at November 2013. return on Assetss was at 12. 73 % up from 12. 2 % in January 2013. Return on equities has been high every bit good. at 105. 39 % in January 2012. up from 44 % in 2011. Liabilitiess have besides unhappily increased in the last four old ages. Expenses have increased from $ 630 million in August 2013 to $ 645 million in November 2013 ( L Brands. 2014 ) . The Cost of Goods Sold has decreased nevertheless. from $ 1. 527 billion in August 2013 to $ 1. 314 billion in November 2013. Entire liabilities were at $ 7. 456 billion in November 2013. up from $ 6. 933 billion in August 2013 ( NASDAQ. 2014 ) .

STATEMENT OF STOCKHOLDER’S EQUITY

Retained net incomes were in the negatives for Victoria’s Secret shareholders. As at November 2013 it was – $ 519 million. Common stock was at $ 153 million but exchequer stock was at a negative of – $ 740 million ( NASDAQ. 2014 ) .

STATEMENT OF CASH FLOWS

The net hard currency provided as a consequence of operating activities as at January 2014was at 1. 279 billion dollars. while the net hard currency provided as a consequence of puting activities at – $ 106 million ( L Brands. 2014 ) . The net hard currency provided as a consequence of funding activities was besides at a negative at – $ 78 million. The negative hard currency flows brought approximately by puting and funding activities imply that they have cost the company more money in their project than they have brought in. However. the big hard currency flows brought in by operating activities are more than plenty to cover the losingss brought approximately by the other classs. so the negative hard currency flows do non worry me excessively much.

FINANCIAL RATIO ANALYSIS

After carry oning the fiscal ratios for Victoria Secrets. it is clear to me that they are able to carry through consumer demands while keeping fiscal stableness. Their Liquid Measures ratios suggests that the company is able to adequately pay for the liabilities while puting assets in a strategic mode. Net Working Capital to Total Assets consequences show that Victoria Secret is able to expeditiously turn assets and cover short-run liabilities. The company is in just wellness. nevertheless there is a diminution in 2011-2013. proposing a little problem turning their assets into hard currency fast adequate to cover their liabilities. For their aggregation period it takes about 7-8 yearss for Victoria Secret to roll up hard currency. intending that they collect hard currency rapidly for reinvestment intents. Victoria Secret depletes and refill their stock list at least five times per twelvemonth to fulfill their consumer demand.

Fixed Asset Turnover for Victoria Secret proves that they are able to utilize their fixed assets efficaciously towards gross revenues grosss. They are able to bring forth $ 4 to $ 5 of gross revenues for every $ 1 that is invested in fixed assets. Their debt/leverage measures the low debt to entire plus ratio implies that Victoria Secret assets are financed more through equity instead than debt and that they are utilizing a conservative capital construction ; finally. by maintaining their debts low and manageable. they have a fiscal advantage. However. Victoria Secret may non be taking advantage of their addition net incomes that comes with fiscal advantage.

Victoria Secret’s gross net income border is above industry norms. bespeaking that Victoria Secret is bring forthing strong gross revenues monetary values that are comparative to their cost of goods sold. Victoria Secret’s runing net income border ratio shows that they have complete and effectual control of their operating costs. nevertheless their gross revenues could be increasing faster than their operating costs. The net net income border ratios suggests that Victoria Secret has a some padding that will assist protect them in instance of difficult times. Victoria Secret is efficaciously pull offing and turning assets into generating net incomes and income on new investings. Victoria Secret makes at least $ 2. 50 per portion and is bring forthing a important dividend for their investors. which leads investors expecting a higher future growing.

Gross saless Prediction

During executing the gross revenues prognosis for Victoria’s Secret. I learned that for most portion that Victoria’s Secret has an slope in their net incomes. They have nevertheless hit a few bumps here and at that place. The causes of this could be more cost for Victoria’s Secret buying stuffs and production of their merchandises. Another ground for this could besides be a slower rate in gross revenues than usual. Like I said. for the most Victoria Secret has seen an slope in their net incomes and gross revenues throughout the old ages.

Performing the per centum of gross revenues forecast for Victoria’s Secret. I established a forecasted gross revenues of 5 per centum which means that they would hold to hold a gross revenues of $ 2. 808 compared to their last old ages $ 2. 675. This is a really executable figure for Victoria Secret to accomplish. sing that bulk of their money in assets outweighs their liabilities. The EFN. External Financing Needed. for Victoria Secret is $ 2. 855. This indicates that Victoria Secret would necessitate to obtain External Financing Needed to accomplish the $ 2. 808 forecasted gross revenues degree. which 5 % more of their current gross revenues gross.

SUBSTANTIAL GROWTH RATE ANALYSIS

Victoria Secret has had a steady growing over the analyzed period. It has non been excessively slow or excessively fast. but one that shows that they are adequately managing the progressive growing of the company. This shows that Victoria Secret is paying close attending to all inside informations of the organisation.

Consequences FACED BY FIRMS THAT GROW AT A Rate THAT IS NOT CONSISTENT WITH THEIR SUSTAINABLE Rate

Turning excessively fast every bit brainsick as it may sound. does hold possible effects for the organisations. These effects could come in the signifier of the organisation non being able to carry through client demand. engage and/or train capable employees to suit for the growing. and trouble in obtaining hard currency to back up the growing. When an organisations excessively fast it will necessitate more capital to back up the growing. On the rearward side. a growing excessively slow can be every bit destructive as turning excessively fast.

Slow growing can hold the effects of desiring or necessitating to spread out their organisation. nevertheless if they do make up one’s mind to spread out without the support of a sufficient gross ; so the organisation runs into possible problem with investors. If Victoria Secret grew at a rate where it was hard for them to be consistent with their sustainable rate. so they would hold either to happen extra support or see extinguishing some of their debt.

IF THE FIRM GREW AT A RATE ABOVE OR BELOW THE SGR. HOW DID IT FINANCE ITS EXCESSIVE GROWTH OR REWARD ITS STOCKHOLDERS FOR THE UNDERPERFORMANCE

Since Victoria Secret has a sustainable growing rate that is steady. they did non necessitate to finance an inordinate growing or honor their shareholders for an underperformance. Victoria Secret’s continued growing and success will depend on their ability to open and run new shops and to spread out and even reconstruct bing shops in a mode that is non merely seasonably but besides on a profitable footing. Carry throughing their new and bing shop enlargement ends will depend upon a figure of factors. including their ability to join forces with developers in order to obtain suited sites for new and expanded shops. the hiring and preparation of qualified forces. and the integrating of new shops into bing operations. However. there are hazards associated with these growings. which could be holding a negative consequence on their consequences of operations. fiscal status and hard currency flows.

FINAL Analysis

Upon my initial analysis on the fiscal public presentation of Victoria Secret. I assumed that were a profitable company. After executing the fiscal ratios analysis. prognosis of gross revenues analysis. and the significant growing analysis ; my premise proved to be right. Victoria Secret proves to be the most profitable concern owned by L Brands. Granted Victoria Secret has had their just portion of bumps in the route. but because of their strategic fiscal program. those bumps did non hold a great trade of import fiscal for them.

What I have learned from making the fiscal analysis on Victoria Secret is that they are an organisation who takes cognizing their fiscal public presentation earnestly. They know. understand. and most significantly can successfully make fiscal strategic programs can function as a tool for their success. every bit good as fix them in instance of a “rainy day” . This is where bulk of organisations fail in executing a fiscal analysis and fixing a fiscal strategic program. Most organisations do non desire to believe or even admit to the potency of holding a “rainy day” . because in their eyes it sets them up for failure. Victoria Secret evidently knows the importance of encompassing the thought of a “rainy day” and prepares for it. which is one of the many grounds they are such a successful organisation.

Conducting the fiscal analysis on Victoria Secret besides proves that my anticipation about how they are able to turn assets into income to can pay for their liabilities every bit good as have adequate left over to reinvest back into the organisation. Victoria Secret clearly understands that growing is important for the success of the organisation while at the same maintaining their growing maintainable without acquiring themselves into fiscal problem. It is clear that Victoria Secret knows the importance of cognizing how to make a fiscal analysis of their organization’s fiscal public presentation and utilizing the analysis to construct a strategic fiscal program. I do believe that if Victoria Secret keeps a persevering ticker on their fiscal public presentation and does regular fiscal analysis. they can go on to be a force to be reckoned with that they have been in the retail industry.

Mentions

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Lutz. A. ( 2013 ) . _Why The Lingerie Industry Can’t Compete With Victoria’s Secret. _ Retrieved from hypertext transfer protocol: //www. businessinsider. com/victorias-secret-will-beat-competition-2013-9

NASDAQ. ( 2014 ) . _L Brands. Inc. Stock Report. _ Retrieved from hypertext transfer protocol: //www. National Association of Securities Dealers Automated Quotations. com/symbol/lb/stock-report