Burberry United Kingdom


Background

Burberry was founded in 1856 when Thomas Burberry constructed his first outerwear garments for the sportsmen of Basingstoke, England. Burberry has become a leading luxury brand with a global business. Burberry is a British fashion house manufacturing such as clothing accessories, perfume and cosmetics, jewellery etc. Its distinctive tartan pattern has become one of its most famous widely copied trademarks. The red, camel, black and white lines became synonymous with Burberry and mostly people could recognise this brand when they just see the check.Its trademark products are mostly fashionable handbags and exclusive fragrances. The Creative Director is Christopher Bailey and the current CEO is Angela Ahrendts.

The Company owns stores in more than 38 countries around the whole world. In 2008 Burberry's revenues were �995.4 millions. In recent decades, the company has become one of the most popular fashion brands in the world. HM Queen Elizabeth II and HRH The Prince of Wales have granted the company Royal Warrants. The red, camel, black and white lines became synonymous with Burberry and mostly people could recognise this brand when they just see the check. Burberry has as known as 'the original British luxury brand' which placed by the Royal Army. The company is listed on the London Stock Exchange and is one of the FTSE 100 Index.


Company History

In 1879, Thomas Burberry invented gabardine - a breathable fabric made using an innovative process whereby the yarn was waterproofed before weaving. This fabric was not only water-resistant but also extremely durable. A patent was taken out in 1888. In 1891, Thomas Burberry opened his first shop in London at the Haymarket, now the site of Burberry's corporate headquarters. In 1901, Burberry was commissioned by the War Office to design a new service uniform for British officers, resulting in the trench coat. After the war, the trench coat became popular with civilians. The iconic Burberry check was created in the 1920s and used as a lining in its trench coats.The Burberry Knight logo was developed and registered as a trademark in 1904. New York and Paris opened afterward.

During the Second World War, Burberry continued to supply high quality gabardines to servicemen in all branches of the services for officers. Burberry was first awarded the Royal Warrant from The Queen in 1955. The Burberry check had been primarily used as a coat lining until a presentation was made in 1967, after that the trademark design applied to umbrellas, luggage and scarves products. Burberry was becoming an independent company until 1955, which Great Universal Stores (GUS) took over it. Burberry Group plc was initially started appeared on the London Stock Exchange in July 2002.


Accounting Ratios

All of the financial data is supplied form the Burberry official web site. Data are all counted as at 31 March of every year. All numbers are presented in 3d.p. form. The currency is GBP in million.

1. Current Assets Ratio

= Current Asset : Current Liabilities

2008:                        �588.40 : 436.20 = 1.349 : 1

2009:                        �742.40 : 546.80 = 1.358 : 1

Difference = 1.358 - 1.349 = �0.009

The ratio in 2009 has slightly increased which mean for each pound of current liabilities the business has the higher amount of current asset to return.

2. Acid Test Ratio

= Current Assets - Inventories : Current liabilities

2008:                        �588.40 - 268.60 : 436.20 = 0.733 : 1

2009:                        �742.40 - 262.20 : 546.80 = 0.878 : 1

Difference = 0.878 - 0.733 = �0.145

Current assets are lower than current liabilities in both years. There is about 14 pence more available of current assets to pay each one pound current liabilities without included inventories in year 2009.

3. Gross Profit Ratio

= (Gross Profit / Total Revenue) X 100%

2008:                        (�617.70/995.40) X 100% = 62.055%

2009:                        (�665.80/1201.50) X 100% = 55.414%

Difference = 55.414 - 62.055 = -6.641%

In 2009, the profit ratio has dropped 6.6% which mean 6.6% of gross profit had decreased inside the total sales.

4. Net Profit Ratio

= (Net profit before tax / Total Revenue) X 100%

2008:                        (�195.70/995.40) X 100% = 19.660%

2009:                        (�16.10/1201.50) X 100% = 1.340%

Difference = 1.340 - 19.660 = 18.32%

The net profit ratio had dropped sharply by 18.32% which means the revenue contained 18.3% less net profit.

5. Mark up ratio

= (Gross Profit / Cost of Goods Sold) X 100%

2008:                         (�617.70/377.70) X 100% = 163.542%

2009:                         (�665.80/535.7) X 100% = 123.823%

Difference = 123.823 - 163.542 = -39.719%

The ratio of gross profit to cost of goods sold had decreased by about 40%.

6. Return on Capital Employed

= (Net profit before tax/Shareholders funds) X 100

2008:                         (�195.70/495.30) X 100% = 39.511%

2009:                         (�16.10/539.30) X 100% = 2.985%

Difference = 2.985 - 39.511 = -36.526%

The ROCE on 2009 2.985% which mean in each pound of shareholders funds, about 3 pence is returned. During 2008 and 2009 the returns had dropped about 37 pence.

7. Fixed Assets Turnover Ratio

= (Total Revenue/Fixed Assets)

2008:                        �995.40/364.80 = 2.729

2009:                        �1201.50/383.30 = 3.135

Difference = 3.135 - 2.729 = 0.406

The turnover ratio in 2009 showed that in each pound of assets value had 3.10 pound returns from the revenue income the ratio return increased about 40 pence.

8. Dividend Yield Ratio

= (Dividend per share/Market price per share) X 100%

2008:                          (�0.12/4.50) X 100% = 2.667%

2009:                        (�0.12/2.80) X 100% = 4.276%

Difference = 4.276 - 2.667 = 1.609%

The dividend ratio in 2009 showed that for each share will earn 4.276% dividend but raised about 1.6% from last year.

9. Price Earnings Ratio

= Market Price per Share / Earnings per Share

2008:                        �4.50/0.32 = 14.062

2009:                        �2.80/0.31 = 9.032

Difference = 9.032 - 14.062 = -5.03

PER in 2009 showed that for each about 9 pound of share could got 1 pound share earnings and the ratio was about 5 lower than last year.

10. Stock Turnover Ratio

= Cost of Goods Sold / Average Stock at Cost

2008:                          �377.70/209.2 = 1.802

2009:                        �535.70/265.6 = 2.017

Difference = 2.017 - 1.802 = 0.215

Stock turnover ratio had increased by 0.2 from last year. In another word for each pound of stock cost, about 20 pence more will spend on the cost of goods sold.


Evaluation

Based on the data provided by the site, Burberry has making improvement on sales year by year. This means much more people approbate this brand and enjoy owing it. By looking through the calculation, most ratios didn't seem to have a great difference between years. For the most different gap I think would be the market price per share. It had a huge drop from �4.50 from last year to �2.80. It was totally affect the net value of the company and the FTSE 100 Index. The main cause of that change was because of the credit crunch in 2008 September. The global share market dipped sharply and millions of people lost their jobs. Those problems engender the crash dive of the currency of Great Britain Pound.

However, leading the fashion around the world, Burberry seem did not had a big crash on their retail business. By ceaselessly producing marvellous products, its status would never be affected easily. It is always a representing the classic and modern faction symbol in the UK people thought. People always feel it is a honour to wear Burberry products hence its check and trademark have already emblematise to a luxury logo.


References

http://www.burberryplc.com/bbry/fininfo/balsheet/

http://www.burberryplc.com/bbry/fininfo/incstat/

http://en.wikipedia.org/wiki/Burberry

http://www.fragrancex.com/products/_bid_Burberrys-am-cid_perfume-am-lid_B__brand_history.html

Source: ChinaStones - http://china-stones.info/free-essays/accounting/burberry-united-kingdom.php


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