PESTLE ANALYSIS OF COMPANIES

Political: political rules and regulations may affect both the companies as any party may impose any rules on companies.
Economical: this is the main factor as tax rules, foreign exchange rules and regulations amended by government time to time may also affect company at very large level.
Social: this is the main factor for this industry as demands and interest change frequently in this industry so this may affect companies at very large level.
Technological: mainly this industry cannot be so affected by this factor but somehow some technological factors may influence its business.
Legal: this is as political factor as legal provisions may affect companies’ policies and its goals also.

Ratio Analysis of Coach Inc and Vans Inc

In this segment we will do ratio analysis of our selected company Coach Inc and second is which is its competitor, in case of brand name is Vans Inc. both the companies are doing well but till the above analysis it is found that Coach Inc is number one brand in year 2015 but financial performance of Vans Inc is far better than Coach Inc as its sale is approximately double than Coach Inc and its balance sheet is also far better than Coach Inc.
Further we will analyze both the companies on the basis of ratio analysis. We will do ratio analysis like profitability ratio analysis, growth rates of sale, Earning before interest,, depreciation, income tax and amortization, operating profits, price earnings ratio, dividend cover ratio, current ratio, quick ratio, working capital turnover ratio, gearing ratio and interest cover ratio.
Apart from this ratio analysis we will also correlate these ratios with many different areas like cost control, productivity improvements, capital appreciation, technology up to dates, budgetary control etc.
Ratio describes the relation between two financial values. For the purpose of analysis of financial performance of any company and to take decision regarding investment, managerial decisions like investment in assets, settlement of short and long term loans, issue or buy back of shares, management of reserves etc.

PROFITABILITY RATIOS:

RETURN ON INVESTED CAPITAL EMPLOYED:
This ratio describes that is company is earning better returns on its investment of issued capital and debts. This is indication of company’s growth in terms of percentage.
In case of Coach Inc return on capital employed is decreased in year 2015 at very large level because in this year there is decline in sale, net profit also and in this year company took long term debts also hence its return on capital employed is decreased in this year.
Further in case of Vans Inc return on capital employed is increased in year 2015 in compare to last 3 years since 2012 to 2014. In year 2015 it is 22% whereas in year 2014 it was 17%. So in this year this is increased. This is increased due to increase in revenue as well as profit for the whole period. (Morning Star, n.d.)
RETURN ON INVESTMENT
This is very important part to be known because everyone wants to know that what is the return percentage on his investment made by him in any company. This is calculated by dividing the net profit by total assets held by company at the end of the year.
For Coach Inc it is decreased in year 2015 like return on capital employed due to decreased in sale and profits. It is continuously decreasing since four years. Since company’s assets are increased due to long term debts but its sale is decreased hence its returns are also decreased.
For Vans Inc it is more than Coach Inc in year 2015. It is less than Coach Inc in previous years but it is maintaining its trend of returns.
GROWTH RATES & SALES REVENUE
In case of Coach Inc sale is decreased in year 2015 and 2014 in comparison last years. It is due to shifting of demands of customers towards other brands.
In case of Vans Inc sale is increased in every four years. Its percentage of increment is not so high still it is far better than Coach Inc.
EARNINGS BEFORE INTEREST, DEPRECIATION, INCOME TAX AND AMORTIZATION
Due to decrease in sale Coach Inc Company’s EBDITA is also decreased in year 2015 and 2014 but in case of Vans Inc it is increased in year 2015 but it was decreased in year 2014 so company has recovered itself significantly. (Morning Star, n.d.)
OPERATING PROFITS
In case of Coach Inc operating profits are decreased due to decrease in sales whereas in Vans Inc it is increased in year 2015 and it was decreased in year 2014.
PRICE EARNINGS RATIO
Vans Inc’s price earnings ratio is better than Coach Inc because in Vans Inc it is more in every year but in coach Inc it is full of variations. (Yahoo.finance, n.d.)
DIVIDEND COVER
Dividend cover of Vans Inc is more than Coach inc. its mean earning available to shareholders is more times than it is paying dividend hence company is retaining earnings of shareholders.
LIQUIDITY RATIO
Current ratio of both the companies is equivalent in every year. In case of quick ratio coach Inc is stronger than Vans Inc in year 2015 as its quick ratio is 2.09 whereas this is 1.17 in case of Vans Inc. working capital turnover is high in Vans Inc in comparison of Coach Inc due to strong current assets and liabilities.
GEARING RATIOS
In absence of information gearing ratio of Coach Inc cannot be calculated because up to year 2014 company does not have long term debts so it may be very lower or nil. Besides, interest coverage ratio is Vans Inc is very strong its mean company is earning very well to pay off its interest expenses.
Gearing ratio of coach Inc is full of variations in comparison of Vans Inc because of long term debts in year 2015.
Connection of ratios with different areas
We may connect ratios with different activities and areas of any organization and any improvements may be done on the basis of ratio analysis. For example EBITDA and operating profits may be connected to cost control. In case of Coach Inc cost control is very necessary because cost is increasing but sale is not increasing in same ratio.
Further gearing ratio can be connected to capital appreciations as company should manage proper mix of issued capital and debts.
Further company can manage its budgetary control by current ratio, quick ratio and working capital turnover ratio. By price earnings ratio and dividend cover ratio it may manage its earnings and dividend for future.

Conclusion

For this assignment we have selected two companies which are United Sates based companies. First is Coach Inc and second is Vans Inc. both these companies are United Sates based companies and both these companies are engaged into Apparel and Accessories industry. Both these company manufactures men and women’ wears like handbags, watches, foot wears, fragrance etc. In United States market of this industry is doing well because citizens become more conscious towards their style, fashion and health so they have shifted towards this type of industry. This industry is doing well since many years.
By analyzing both the companies it is concluded that on the basis of Profitability Vans Inc is better than Coach Inc as its return on capital employed as well as its return on investment. On the basis of Growth Rates also Vans Inc is doing well as in year 2015, sale of Coach Inc is decreased whereas Vans Inc has recorded increase in sale in every year. Further in operating profits also Vans Inc is doing well.
For Investor Ratios price earning is ratio of Coach Inc is full of variations so trust cannot be made on this company whereas Vans Inc is doing well in every case.
For Liquidity Ratios, Quick ratio of Coach Inc is good in year 2015 in compare to Vans Inc. Further working capital turnover ratio is excellent in Vans Inc in comparison to Coach Inc.
Gearing ratio is strong of Vans Inc as well its interest coverage ratio is also good in compare to Coach Inc. Vans Inc is earning very well to settle its interest expenses. Since Coach Inc is is dependent upon share capital so its interest coverage ratio is approximately zero. It is not good indication for business.
Vans Inc has strong Working Capital in comparison of Coach Inc as its assets and liabilities are well categorized and strong.
On the basis of overall analysis it is said that on the basis of market analysis Coach Inc can be a number brand but financial performance shown another picture because Vans Inc is far better than Coach Inc in every aspect it may be profitability, liquidity investor ratios etc.

RECOMMENDATION FOR INVESTMENT IN COACH INC

On the basis of analysis and conclusion it is recommended for investors of Coach Inc that they should wait for some betterment as variations are natural for any company so they should not take decision to sell their shares so they should wait for some time so that company may recover itself from hardship.
For persons who are thinking to invest in Coach Inc is recommended to wait fr some while so that company may convert its loss position into profitable position.

SOME OTHER POINTS:

Managing stakeholders: To provide better returns to shareholders it is necessary that company should gain profit in every year. Both the companies are providing dividend to their shareholders every year by which shareholders are also remained with company. Company earns for its shareholders so if company does not give returns to its shareholders than shareholders will start to withdraw their money from company but both these companies are giving better returns to shareholders so they are managing their shareholders very effectively.
Effective distribution channels: in today scenario business should be spread in many places. Due to globalization conducting business is not so hard and difficult so every company tries to spread its business in possible areas.
Both the companies are top most companies of United States in year 2015 so there business will be speeded over the many countries. Coach Inc being the number brand of Foot wears has expanded its business in United States, United Kingdom, Australia also and trying to spread its business in more countries also. Business of Vans Inc is also established in many countries and both the companies try to establish many distribution channels so demand of customers over the many countries can be fulfilled.
Technological aspects: for conducting business in today’s competition it is necessary to adopt latest technology. Both the companies are technological strong as both the companies have set up their online trading business also so that customers who are not interested in going to market they can purchase from online websites also.
CSR Activities by both companies: In current scenario expenditure on CSR activities is very necessary because government is very concerned towards expenditure to promote under progressed industries, projects, place and persons. So it has made mandatory to expand some amount in these areas. Normally this is 2% of average profit of last years. It is not compulsory to expend the entire amount but company should make required steps to help in progressing these weak areas.
Both the companies are investing in these areas. Being the top most brand of industry it is necessary to be involved in these activities also. Both the company pay higher amount to help these under progressed areas.

Non financial indicators in balance score card: financial indicators are very essential for any company to evaluate. But non financial indicators also have importance in company. Company prepares balance score card to evaluate and measure its performance in many areas.
Balance score card consists of four perspectives these are financial perspective, customer perspective, business internal process and innovation perspectives. Except financial perspective all three are non financial perspectives and both these companies are complying with all three indicators also. They disclose their customers response their services, high or low in numbers of customers, employee training, employee retention, knowledge, experience of employees etc.
Key difference in approach of analyzing the investment in noncurrent assets and working capital management
Finance or money is most important elements to operate any business. In absence of these elements operation of any business cannot be imagined. Money is required at every levy of business from the establishing level and till the dissolution of business. Company invests in many projects, major plans, acquires assets, business so for these investments it requires major finance management and for this it may issue share capital or take loan from banks or other financial institutions.
Only investment in assets is not sufficient because after establishing money is required to operate the business. It requires money for day to day operations. For day to day operations it requires capital which is called working capital. Management of working capital management is called working capital management. This is also very important part of management for company because in case of failure of proper working capital management company may have to face challenges at short term as well as long term basis. In absence of proper working capital management, company has to release its noncurrent investment to get money and it will badly affect the entire business of an organization.
Investment in noncurrent assets and investment in working capital management both have their own importance, advantage and disadvantage. Company should maintain and manage these decisions very effectively so that company may be established effectively and operate for infinite time.
Every company is required to maintain the proper mix of long term investment and short term investment otherwise it will have to face many financial difficulties like storage problem, opportunity cost, creditworthiness,
Whereas noncurrent investment requires more analysis, more money, more experience, more knowledge but in case of investment in working capital these requirements are somehow very less.
When any company plans for expansion or takeover other business then it goes for investment in noncurrent assets. Investing in noncurrent assets is very important decision for any company because this decision takes major time as well as money of any organization. If in any condition this decision is proved to be wrong then it will affect the organization at a large level and n case of small companies even survival can be difficult.
There are various differences in approach for analyzing the financial feasibility for noncurrent assets and evaluating the efficiency of working capital management.

Followings are the some major difference in approach of analyzing the financial feasibility of noncurrent assets and evaluating efficiency of working capital management:
For investment in noncurrent assets detailed analysis of market is necessary that what type of plant. Building, software etc are being used by other companies so that our company cannot be backward but in case of evaluating the efficiency of working capital this analysis is not important at all.
In case of financial feasibility of investment in noncurrent asset feasibility is done on the basis of present value because this investment is made for at least 3 or 5 years but in case of evaluating the efficiency of working capital management present value factor is ignores because working capital management is done for short term basis let say maximum for one year.
Investment made by company in noncurrent assets are long term decision which affect any company on long term basis which aims to grow the wealth of shareholders as well as company but investment in working capital is short term basis so this investment does not affect company and its shareholders.
Many techniques are used to evaluate the financial feasibility of any investment in noncurrent assets but in case of evaluation of working capital there is no list of methods which should be used to evaluate the working capital management.
For the purpose of evaluating the investment in noncurrent assets we require cash inflow, cash outflow with their present value, terminal value of asset, affect on sale, cost etc. but in case of working capital we do not require these requirement, instead of them we require storage period of inventory like raw material, work in progress and finished goods, receivables, prepaid expenses, cash, payables, outstanding expenses and contingency amount.
In case of investment in working capital ratios like current ratio, quick ratio, working capital ratio, inventory turnover ratio, receivable turnover ratio, creditors turnover ratio etc. are used but in case of investment in noncurrent assets financial feasibility is evaluated by applying financial appraisal techniques like NPV method, Payback period method, discounted payback period method, Accounting rate of return method, Internal rate of return method etc.
Investment in noncurrent assets is made by issuing share capital, taking long term loans, withdrawal from reserves but in case of working capital these resources are not used. For working capital company manly uses short term loans from banks of financial institutions to get money.
So these are main difference in both the investment in noncurrent assets and working capital. So company should aware of all the facts and should do business accordingly. Otherwise it may face any drawbacks of taking wrong decision. Management will be liable for any wrong decision and shareholders will have to suffer major loss on their investment and they may lose their entire wealth due to wrong decision of management. so it is recommended that company should make a full analysis for these two investment s and should act accordingly.

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References

Santosh, 2015, Top 10 Shoe Brands in the World 2015, available at http://www.worldblaze.in/top-10-shoe-brands-in-the-world/2/ [Online] [Accessed on 27/06/2016]
Morning Star, n.d., Key Ratios – Coach Inc, available at http://financials.morningstar.com/ratios/r.html?t=COH®ion=usa&culture=en-US [Online] [Accessed on 27/06/2016]
Morning Star, n.d., Key Ratios – Vans Inc, available at http://financials.morningstar.com/ratios/r.html?t=VFC®ion=usa&culture=en-US [Online] [Accessed on 27/06/2016]
Euro monitor international, 2016, Apparel and Footwear in the US, available at http://www.euromonitor.com/apparel-and-footwear-in-the-us/report [Online] [Accessed on 27/06/2016]
Coach, n.d., Annual report, 2015, available at http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NTkzMDUwfENoaWxkSUQ9MzAxNDUyfFR5cGU9MQ==&t=1 [Online] [Accessed on 27/06/2016]
Vans, n.d., Annual report, 2015, available at http://content.stockpr.com/vfc/db/74/17020/annual_report/VF_Annual_Report_2015-Digital.pdf [Online] [Accessed on 27/06/2016]
Yahoo. Finance, n.d., Historical prices – Coach Inc , available at https://in.finance.yahoo.com/q/hp?s=COH [Online] [Accessed on 27/06/2016]
Yahoo. Finance, n.d., Historical Prices – Vans Inc, available eta http://finance.yahoo.com/q/hp?s=VFC+Historical+Prices [Online] [Accessed on 27/06/2016]

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PESTLE ANALYSIS OF COMPANIES

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BRIEF ABOUT THE COMPANIES

COACH INC.

Description of core business of both the companies