Ratio Analysis: Estee Lauder vs. L’Oreal Essay Example

– 3121-826. 6-427. 5/1572. 2 = 118. 7%

Activity Asset Turnover

• Estee Lauder – 7795. 8/5335. 6 = 146. 1%
• L’Oreal – 19495. 8/24044. 5 = 81. 1%

Receivables Turnover

• Estee Lauder – 7795. 8/(746. 2+853. 3)/2 = 9. 75
• L’Oreal – 19495. 8/(2685. 3+2442. 3)/2 = 7. 6

Coverage Debt to Total Assets

• Estee Lauder – 1572. 2+1798/5335. 6 = 63. 2%
• L’Oreal – 2596. 6+6582. 1/24044. 5 = 38. 2%

Cash Debt Coverage Ratio

• Estee Lauder – 956. 7/(3370. 2+3512. 6)/2 = 27. %
• L’Oreal – 3303. 6/(9178. 7+9693.

Profitability measure a company’s ability to generate profits. The Return on Investment for Estee Lauder is larger than L’Oreal’s, meaning Estee Lauder is more efficient with its investments. The return on capital employed indicates the efficiency and profitability of capital investments. Estee Lauder seems to have better efficiency of capital investments than L’Oreal by about three percent. Operating margin is a measurement of what amount of revenues is left over after paying for variable costs.

L’Oreal makes about 16 cents on the dollar where Estee Lauder makes about 10 cents on the dollar. L’Oreal is more efficient with its pricing strategy and earning more per dollar of sales. Gross margin is the ratio of a dollar revenue that is used to cover costs and obligations. Both companies have relatively high gross margins although Estee Lauder is more efficient in covering costs with its revenue than L’Oreal. Sales Growth is simply the growth in sales from the previous year in a percentage. L’Oreal grew almost 12% from 2009 to 2010.

Estee Lauder also grew but only by about 6%. Liquidity measures a company’s

ability to meet its current obligations. Positive working capital means that a company is able to pay off its short-term liabilities. Both Estee Lauder and L’Oreal have very high working capital making them very liquid. They are both considered healthy firms. The acid test determines whether a company has enough short-term assets to cover its current liabilities without considering selling inventory. Both Estee Lauder and L’Oreal have acid tests that are lower than their working capitals.

This means their assets depend heavily on their inventory. Estee Lauder has a more efficient way of collecting accounts receivable than L’Oreal.