Assignment 3

Assignment 3

Industry Section

Abercrombie &Fitch Co. is an organization that operates in the retail industry, where a wide range of products are sold directly to the consumers. The company has chosen the direct channel for reaching its target customers like many other companies in the industry. The company has different brands for its sportswear products, men clothing, female clothing and etc. The company not only has its retail stores in United States but it also operates several stores outside US. The company has created several brands in order to target different segment of clothing industry in US and outside US.

The company has to face severe competition in the retail clothing industry of US where there are several local and international brands targeting different segments of the industry or different customers. The company has started its operations outside US in order to avoid saturation in the industry. In order to ensure that the products or brands of the company are not copied by the competitors the company has bought patents and copyrights for its products. The clothing and accessories industry in US is highly competitive as there are numerous individual and fashion specialty chains that are spread nationally and regionally. On the international front the company has to face competition from local and established retailers. The key factors of success in retail store and direct to consumer industry are brand recognition, price, services, fashion, locality, selection and the quality of the products. These factors are able to provide competitive advantage to the companies operating in this industry.

Financial Comparison

In order to find out that the performance of Abercrombie and Fitch Co. it is important to develop an analysis on the basis of the following key ratios:

Financial Summary

 

Ratio Calculations

 

 

A & F Co.

 

 

2011

2010

Working Assets

1433268

1225683

Working Liabilities

558851

449372

Working Investment or Capital

874417

776311

Return on Equity (ROE)

0.082215

0.01

Return on Assets (ROA)

0.053257

0.01

Gross Profit Margin

64%

64.37%

Net Profit Margin

4.40%

1.10%

Total Asset Turnover

1.229249

1.03

Debt Ratio

0.3586

0.04

The above ratios present the financial summary of Abercrombie and Fitch Co. that shows the profitability, growth, liquidity and leverage of the firm. The working assets, liabilities and capital or investment shows that in order to fulfill the obligations there are more than 2 assets available. According to financial experts the firms that have an ideal current ratio of 2 are said to be in a very stable position. Similarly the ratios of A & F Co. over the years have reached a stable position and it shows that currently the firm is in a better financial position. The other ratios that are return on asset shows that the firm is unable to generate targeted returns from its assets. The return on equity can further be utilized to increase the returns so that more investors can be attracted. Over the years increasing trends have been observed in the gross profit and net profit margins which shows that the firm is able to control its weaknesses. The debt ratio has increased over the years which show stability in the overall financial position of the firm.Similarly the return on total assets has also increased in the ...