A Financial Ratio Quarterly Trend Analysis Essay Example

This can be attributed to lower pricing, which offset the benefit of lower costs. Additionally, unplanned markdowns on unsold spring product also affected the company's profitability. The firm's current ratio, greater than 1, indicates its ability to meet financial obligations.

Asset Utilization
The financial trend based on the mentioned four quarters is fluctuating. In Q1, there was a reasonable increase in supply and demand as shown by the price index ratio. However, there was a dip in Q2 followed by an even higher increase in Q3 compared to Q1 and then a drop in Q4.

The business may have fluctuations in profits or sales, but this does not impact the current economic situation. This evaluation is determined by analyzing accounts receivables and credit sales.

Profitability

When evaluating Abercrombie and Fitch's profitability, it becomes apparent that their gross profit margins are substantial. This suggests that customers are willing to pay more than the company's expenses for their products. Considering Abercrombie ; Fitch's appeal among teenagers, it is reasonable to expect higher prices.

In the first and fourth quarters, a high operating expense negatively affects the net profit margin. Along with this, the Debt/Equity ratio is used to assess debt utilization by comparing the company's debt repayment obligation to its equity.

The firm's debt-to-equity ratio of 1 signifies that its debts are equal to its equity. A smaller ratio implies less debt. In comparison to the industry and S&P 500, ANF has a below-average ratio, indicating a favorable debt position. Market Utilization 09-09Earnings per Shares (year-to-date) demonstrate a positive amount of retained earnings in relation to outstanding shares. Higher EPS values lead to increased dividends for shareholders.

Abercrombie and Fitch's EPS is favorable, indicating

their established market position. Market capitalization is determined by multiplying the price per share with the number of outstanding shares. Abercrombie acknowledges the fierce competition in selling apparel and personal care products through various channels like retail stores, direct-to-consumer business, catalogue sales, and e-commerce. They face competition from individual and chain fashion specialty stores as well as department stores. Abercrombie strives to enhance fashion, price, service, store location, selection, and quality to maintain their market position. This can be seen through visual merchandising techniques, in-store marketing strategies, music choices, fragrances available in-store, and knowledgeable sales associates who embody the brand's lifestyle. In terms of male clothing products specifically, Abercrombie consistently outperforms competitors with a gross profit margin of 64%, surpassing industry benchmarks.

Abercrombie and Fitch's sales are only 14% compared to the industry's 38.67% because their high-end prices are much higher than those of Old Navy, who sell similar products at lower prices. The lower net profit margin is due to ANF's operating expenses, which can be attributed to the company's focus on store appearance and advertising in order to sell high-priced clothing. Both companies manufacture similar outfits in China for $1 each, but Abercrombie and Fitch's cost is 300% higher than that of Old Navy and other similar companies. The lower days in inventory compared to the industry is mainly due to the higher cost of clothing and ANF's reluctance to offer significant discounts compared to their competitors.

In the future, Abercrombie & Fitch may face implications such as another recession or competition from companies like GAP and Old Navy, who may offer more discounts. Compared to the industry, ANF has a lower debt/equity ratio, indicating

that it is in good financial standing. In the young adult market, buyers are known to have changing preferences in clothing. However, Abercrombie and Fitch has an advantage over some competitors like GAP and American Eagle because its wide range of brands allows the company to adapt easily to trends.

SWOT Analysis

Strengths

• Net Sales has shown an increase every year
• Cash inflow also shows an increase for several years
• The Financial ratios are very good
• Positive holding period return
• It has a good financial position
• Very effective marketing strategy
• Gross Profit Margin is very good
• High quality products/services
• Very Strong brand
• Has an excellent reputation with the young population between 14 - 24

Weaknesses

• High cost structure
• Over pricing
• Limited customer base
• Operating Expenses are high

Opportunities

• It has a very good financial position
• It has an advantage with the younger population with online/e-commerce presence
• There could be an increase in growth of the industry of operations
• Can enter new markets offshore or expand line to over 24 population
• It can also have structural changes in the industry

Threats

• Increase in competition from foreign markets
• There can be a change in consumer lifestyles
• Financial slowdown due to another recession
• There can be a market slow growth or decline
• Youth may substitute products for more discounted products that look just the same

Abercrombie and Fitch showcases their pride in their commitment to international human and labor rights on a dedicated website. They emphasize the importance

of their products being manufactured in safe and responsible facilities, and only partner with suppliers who adhere to local laws and share their commitment to best practices in human rights, labor rights, and workplace safety. Abercrombie & Fitch believes in conducting business with honesty and respect for the dignity and rights of all individuals (source: https://afcares.

Abercrombie & Fitch (anfcorp. com/anf/intranet/site/afcares/human_rights) uses third-party auditors to regularly inspect factories in their supply chain. They work together with factories to continuously improve and increase transparency. Additionally, there is potential for Abercrombie and Fitch to expand its store footprint. Despite the recent economic downturn in the United States, I believe that Abercrombie has been able to sustain profitability. Wall Street analysts hold diverse views on different aspects of the retail sector.

Eric Beder from Brean Murray, Carret & Co upgraded Abercrombie & Fitch from Sell to Hold. He noted that the stock is currently trading 2 percent below his previous price target (source: Wall Street Journal). Personally, I would not deposit one million dollars or more in this stock or any other stock of this size currently on the market. Instead, I would invest half of that amount and use the other half for online banking's simple APR index increases. Moreover, any return received from the half invested in this stock would be reinvested in a safer alternative investment. Specifically, I would invest $500k in the company's debt bonds due to their higher risk and return compared to other options in the market, excluding returns from tax-lien properties held for a 2-3 year period.

Bonds have a higher level of security and can contribute to a more reliable final return.

However, in this volatile market, they are still susceptible to possible failure. If I were a member of the Bank's Board of Directors and sat on the Credit Committee, I would not approve a one million dollar line of credit for Overnight or Term Federal Funds for this company. The trillion-dollar deficit in place raises doubts about the need for borrowed money by banks and other agencies that are capable of repayment. Irrespective of negotiations, promises of payback, or industry standards, any line of credit would be distributed over a controlled period with safeguards to prevent misuse of funds for personal expenses by executives. The past experience teaches us to be cautious and not be deceived again.