Financial Report Of Capri Holdings Limited Case Study Solution

Introduction

Capri Holdings Ltd is a multinational fashion luxury group, which is considered as a market leader in the areas of design, style and craftsmanship.Michael Korsis the founder of Capri Holdings Ltd, who started its operations in America, in the year of 1981. This company is renowned for its developments in the fashion industry.

The product’s portfolio of Capri Holding’s includes: men and women’s luxury accessories, footwear, fragrance products, watches, jewelry and eyewear products.  LBrands, Fast Retailing Co Ltd, Ralph Lauren and Fering are the major competitors who are also operating in the same industry.

Overview of the financial statements

Statement of Financial Position

In this section of financial statements;the balance sheet of Capri Holdings Ltd is being analyzed. Starting with the company’s total assets that has increased from$4,059,000 in 2018to $6,650,000in 2019. The company’s non-current assets haveincreased considerably by 75.9% i.e.$4,921,000 in 2019as compared to its previous year’s non-current assets of$2,796,900, in 2018, which is good for the company as fixed assets of the company have increased. The company’s current assets have also improved by from $1,262,100 in 2018to $1,729,000 in 2019, which is 36.9%.The current assets had an increase because of an increase in the inventory figure, which has increased from$660,700 in 2018to $953,000 in 2019.Cash and cash equivalents have slightly increased in 2019, which highlights thatCapri Holdings Ltdis not efficient in liquidity management.

Now by looking at the balance sheet side of liability and owner’s equity; we can see that the total equity of Capri Holdings Ltd. increased by 20.16%,mainly due to an increase in capital surplus and treasury stock. There is an increase in the long-term borrowingby 187% i.e.$1,936,000,in 2019, which showsfurther long-term loans of $1,261,600 in the year 2019. Moreover, current liabilities have increased up to 95%, which is due to an increase in the accountspayables, which has become $1,542,000 at the end of 2019, as compared to $789,700 at the end of 2018.

Income statement

The Sales Capri Holdings ltd. increased in 2019 by 11.01%, which is $5,238,000 as compared to $4,718,600,in 2018.Furthermore, by increasing the cost of goods sold (COGS)by 10.69%; thecompany’s gross profit has increased by just 11.2% ($3,180,000) in 2019.Overall,the company’s operating expenses havedecreased by the 42.07%, due to not incurring any expense on R&D in year 2019. There is no impairment cost in the year 2019 as compared to the impairment cost of $32,700, in 2018. The company’s interest burden is increased from $22,300 to$38,000 in 2019. Due to this increase in the interest payments;the company’s Earning before tax (EBT) has also decreased by 16.28% i.e. $621,000,in 2019. The net effect on the profit was a decrease of 8.29% ($543,000)in 2019, from $592,090 in 2018. This means that the Capri Holdings Ltd. generated less income in 2019, which is due to the loss incurred in 2019, such as equity loss and net income loss from operations.

Cash Flow Statements

By looking at the Capri HoldingsLtd cash flow statement; we can see that the cash management of the company has declined in 2019. Although $735,000 has been generated from operating activities. However, the net operating cash flow has begun to decrease due to an increasein the inventory figure by $125,000 and decrease in the company’s accounts receivables. Moreover, with an increase in the additional investment in Plant, Property & Equipment and Acquisitions; the net cash flow figure form investing activities seems to benegative. Nevertheless, Capri Holdings ltd. increased its current debt by $1,64,4000in order to finance its business. Overall the company’s net cash and cash equivalent figure seem positive, which indicates that the Capri Holdings Ltd is adopting an expansion strategy, because long-term assets of the company haveincreased in 2019 than what they were in 2018, which has happened due to the investments in acquisitions and goodwill………………………………..

 

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