The Prada Group Orly Brooker - Financial Accounting-Summer Semester
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The Prada Group
Orly Brooker
Financial Accounting—Summer Semester
http://www.pradagroup.com/documents/announcement/E-
Annual-Report-2012.pdf
Introduction
Chief Executive Officer: Patrizio Bertelli
Location of Home Office: Via A. Fogazzaro, 28; 20135 Milan, Italy
Ending date of last fiscal year: January 31st, 2013
Principal Products: “The PRADA Group is one of the world’s
leaders in the design, production and distribution of luxury
handbags, leather goods, footwear, ready-to-wear apparel,
accessories, eyewear and fragrances. The Group owns some of
the most prestigious international brands: Prada, Miu Miu, Car
Shoes and Church’s.”—http://www.pradagroup.com/en/group/group-profile
Main Area of Activity: The Prada Group saw the most sales in the
Asia Pacific area (1,160,166 in thousands of Euro out of Net
Sales of 3,297,219 in thousands of Euro)
Audit Report
Independent Auditors: Deloitte & Touche S.p.A.
In the Independent Auditors’ Report, the auditors
stated, after a careful and meticulous review, that the
Prada Group’s financial statements were prepared
according to the International Financial Reporting
Standards of the European Union, present a fair look
at the company’s financial position as of January 31st,
3013, and line up with the company’s internal system
of operations (management).
Stock Market Information
(for the Prada Group stock, traded on the HKSE, stock code 1913)
Most Recent Stock Price: $74.85 Hong Kong Dollars
Twelve Month Trading Range: High at $82.30 on
3/11/2013—Low at $42.90 on 6/4/2012
Dividend per Share: $0.9 per share (EUR 230.3 million final dividend)
Date of Information: May 31st, 2013
I would either buy shares of this company’s stock or hold
them. The Prada Group’s stock appears based on the above
information to be rising in value, so I would either invest
long-term in the company by purchasing roughly 20-50%
ownership now as stock is rising, or I would wait to see if it
might rise any higher before selling any previously
purchased shares (if I had been holding investments in the
short term, such as trading securities or available for sale
securities).
Income Statement (from the consolidated financial statement of the Prada Group)
Income Statement cont.
The above income statement is presented in a multistep format, meaning
not all revenue accounts and expense accounts are listed together. Instead,
net revenue is listed first (income from operations/sales), and cost of
goods sold is subtracted, leaving us with the company’s gross profit.
Operating expenses (selling, administrative, general) were then subtracted
to give the operating income of the company, and other revenues and
expenses (interest, dividends) were added/subtracted to give income
before taxes, and a final net income from continuing operations of
$633,277 in thousands of Euros.
The Prada Group’s net revenues increased by approximately $741,673
thousand Euros during the 2012 fiscal year, over a 29% increase from
2011, leading to an increase in gross margin, which reflects positively on
the growth of the company and its continued ability to generate sales.
Furthermore, the Prada Group saw an increase in net income from
continuing operations from the fiscal year ending 1/31/2012 to
1/31/2013 of approximately $196,852 thousand Euros, also displaying a
positive trend in the company’s growth.
Balance Sheet (from the consolidated financial
statement of the Prada Group)
Balance Sheet
Balance Sheet
The changes seen in the key balance sheet accounts generally
denoted positive growth for the Prada Group. Its net current assets
saw an increase, its total liabilities saw a slight decrease, and its
shareholders’ equity saw a large increase (showing that stock
ownership in the company is increasing, hence it is seen as a
beneficial and worthwhile investment).
Most noteworthy are the changes in the total assets and non-
current liability accounts. Total assets increased by approximately
15% mainly due to cash and trade receivable increases. While total
current liabilities saw a slight increase, meaning the company has
more promises and responsibilities to fulfill in the near future, total
non-current liabilities saw a significant decrease, mainly due to a
decreasing long-term financial payables account. This shows that
the Prada Group has been able to debit this account buy starting to
pay what it owes in terms of financing activities. This further
proves the positive financial standing of the company and would
appear favorable in the eyes of potential investors .
Statement of Cash Flows (from the consolidated financial statement of the Prada Group)
Statement of Cash Flows
Statement of Cash Flows
During the 2011 and 2012 fiscal years, the Prada Group’s net cash flows from
operations were greater than net income.
Cash flows from operations have been more than net income for the past two years, but
the difference between the two saw a large increase in 2012. In 2011, cash flow from
operations was greater than than net income by $43,529 thousand Euros. In 2012, the
difference was $125,995 thousand Euros.
The company has been growing mainly due to sales as opposed to through investing
activities, highlighting the Group’s focus on and commitment to effective sales efforts;
however, the Group made significant investments in the purchase of PP&E during
2012.
The company’s primary source of financing was from new long term borrowings
arranged ($70,627 thousand Euros in cash). It’s significant to note that most all other
cash financing accounts in 2012 showed a decrease, i.e. outflow of cash, so cash paid for
financing activities greatly increased. The company paid off accounts such as repayment
of short-term potion of long-term borrowings, contributing to the overall outflow of
cash due to financing activities. This could be a display of the Prada Group choosing to
pay off many liabilities in the year that it achieved such high sales numbers.
Closing cash and cash equivalents has seen an overall increase over the past two years
from $353,554 thousand Euros to $571,222 thousand Euros, a $218,168 thousand Euros
difference.Accounting Policies (cash,
revenue, investments)
“Cash and cash equivalents are carried “Investments in associated
in the statement of financial position at undertakings and joint ventures…are
nominal amount. Cash equivalents accounted for under the equity method
include all highly liquid investments of accounting.”
with an original maturity of three
months or less.” “Any goodwill included in the historical
cost of the investment is tested
“For the purposes of the cash flow annually for impairment.”
statement only, cash and cash
equivalents comprise cash on hand, “The parent company’s share of the
bank accounts and deposit accounts.” profit or loss of the investee is
recorded in its income statement.
“Revenues from the sale of goods are Dividends received from the investee
recognized in the income statement company reduce the carrying amount
when the risks and rewards of of the investment.”
ownership are transferred to the
buyer; the value of the revenues can be “If a subsidiary…uses accounting
reliably measured; all control over the policies other than IFRS, adjustments
goods sold has ceased; the economic are made to bring its accounting
benefits generated by the transaction policies into line with those of the
will probably be enjoyed by the parent company.”
Company; the costs pertaining to the
transaction can be reliably measured.”Accounting Policies (accts.
receivable, PP&E, inventory)
“Property, plant and equipment are
“Trade accounts receivable are carried at recorded at purchase cost or production
nominal amount less the provision for cost, including any charges directly
doubtful accounts, estimated based on an
attributable. They are shown net of
assessment of all disputed and doubtful
balances at the reporting date. Bad debts accumulated depreciation calculated on
are written off when identified.” the basis of the useful lives of the assets
and any impairment losses. Interest costs
“Raw materials, work in progress and on borrowings…are capitalized to
finished products are recorded at the lower increase the value of the asset.”
of acquisition cost, production cost and
net realizable value. Cost comprises “The costs included under leasehold
direct production costs and those improvements relate to refurbishment
overheads that have been incurred in work carried out on assets not owned by
bringing the inventories to their present the Group.”
location and condition.”
“All costs incurred during the period
“Provisions, adjusting the value of the between the start of refurbishment work
inventory, are made for slow moving, and the opening of the store are capitalized
obsolete inventories and if the estimated as leasehold improvements….”
selling price is lower than cost.”Accounting Policies cont. (notes
topics)
1.General information
2. Basis of preparation
3. Amendments to IFRS
4. Scope of consolidation
5. Basis of consolidation
6. Main accounting policies
7. Acquisition, disinvestments, and incorporation of subsidiaries
8. Operating segments
9. Cash and cash equivalents
10. Trade receivables, net
11. Inventories, net
12. Derivative financial instruments: assets and liabilities
13. Receivables and advance payments from parent companies and other related parties
14. Other current assetsAccounting Policies cont. (notes topics)
15. Property, plant and equipment
16. Intangible assets
17. Investments
18. Other non-current assets
19. Short-term financial payables and bank overdrafts
20. Payables to parent companies and other related parties
21. Trade payables
22. Tax payables
23. Obligations under finance leases
24. Other current liabilities
25. Long-term financial payables
26. Long-term employee benefits
27. Provisions for risks and charges
28. Other non-current liabilitiesAccounting Policies cont. (notes
topics)
29. Shareholders’ equity - Group
30. Shareholders’ equity
31. Net revenues
32. Cost of goods sold
33. Operating costs
34. Interest and other financial income/(expenses), net
35. Income taxes
36. Earnings and Dividends per share
37. Additional information
38. Remuneration of Board of Directors, five highest paid individuals and Senior Management
39. Transactions with related parties
40. Commitments
Financial summary
Definitions
43. Consolidated companies
44. Events after the reporting periodLiquidity Ratios 2011
Working Capital: 1,117,503-
716,584=$400,9191 It appears the Inventory Turnover:
company was in a position to
quickly acquire cash (i.e. liquid). 727,581(COGS)/((374,785+280,
Current Ratio: 409)/2)(Avg. Inven.)=2.22 This
1,117,503/716,584 =1.56 It suggests that inventory cycled
appears the company was liquid through operations relatively
enough to cover current liabilities efficiently.
with current assets.
Receivable Turnover: Avg. day’s invt. on hand:
2,555,506(SALES)/(266,404+27 365/2.22=164 days Inventory
4,175/2)(Avg. AR)=9.45 This was held for a lengthy period, but
suggests that credit granting and this is to be expected for luxury
collecting activities were relatively
successful. retail.
Avg. days’ sales uncollected: Operating cycle: 39 days + 164
365/9.45=39 days Revenue was days=203 days. Note that this is
collected relatively quickly.
less than a year.Liquidity Ratios 2012
Working Capital: 1,387,449- Inventory Turnover:
742,062=$645,387 It appears the company 920,678/((343,802+374,782)/2)=
is in an even better position to quickly 2.56 This suggests that inventory
acquire cash (i.e. liquid) than in the previous cycled through operations faster and
year. more efficiently that the previous
Current Ratio: 1,387,449/742,062=1.87 year.
It appears the company is slightly more
liquid, in a better position to cover current Avg. day’s invt. on hand:
liabilities with current assets. 365/2.56=143 days Inventory was
Receivable Turnover: held for less than in the previous year
3,297,219(SALES)/(304,525+266,404/2 (still lengthy, but to be expected for
)(Avg. AR)=11.55 This suggests that credit luxury retail).
granting and collecting activities were more
successful that the previous year, and efficient
Operating cycle: 37 days + 143
overall. days=180 days. The cycle is shorter
Avg. days’ sales uncollected: than the previous year. Note that this
365/11.55=37 days Revenue was collected is still less than a year.
slightly faster than the previous year, and
relatively quickly.Profitability Ratios 2011
Profit Margin: Return on Assets:
436,425/2,555,606=0.17 x 436,425/((2,943,568+2,366,015)
100=16% This shows that 17 cents /2)=0.16 x 100=16% This
of every dollar of sales was a indicates that total assets were
profit, which is not particularly somewhat profitable.
high, but does indicate profitability.
Return on Equity:
Asset Turnover: 436,425/((1,822,743+1,204,350)
2,555,606/((2,943,568+2,366,01 /2)=0.28x100=28% This
5)/2)=0.96 This indicates that the indicates that shareholders’
company was using their resources investments contributed
to generate sales in a very efficient significantly to profit.
manner.Profitability Ratios 2012
Profit Margin:
633,277/3,297,219=0.19 x Return on Assets:
100=19% This shows that 19 633,277/((3,385,279+2,943,5
cents of every dollar of sales 68)/2)=0.20 x 100=20% This
was a profit, which is not indicates that total assets were
particularly high, but does relatively profitable, slightly
indicate profitability. It is two more than the previous year.
cents higher than the previous
year. Return on Equity:
633,277/((2,320,022+1,822,7
Asset Turnover: 43)=0.31x100=31% This
3,297,219/((3,385,279+2,943, indicates that shareholders’
568)/2)=1.04 This indicates investments contributed
that the company was using their significantly to profit, although
resources to generate sales in a slightly less than the previous
very efficient manner, even more year.
so than the previous year.Market Strength Ratios@
year end 12/31/2011
Price/earnings per share Dividend yield
625,681,459 (group net income (5.0 Euro/cents)/35.15=0.14
in euro)/2,535,777,885(avg.
shares outstanding) =.17 This shows a small cash return on
shareholders’ investments, but this
This shows that the company’s is relatively normal for a fast
common stock represents growing company.
strong investment potential.
*Note: “On May 26, 2011, a
Shareholders’ Meeting of PRADA spa
resolved to change the par value of the
Company’s shares from Euro 1 to Euro
0.1 each. In accordance with IAS 33,
the number of shares in issue in 2010
was retrospectively adjusted for the
purposes of the calculation of earnings
per share.”Market Strength Ratios @
year end 12/31/2012
Price/earnings per share:
Dividend yield:
625,681,459 (group net income
in Euro)/.2,558,824,000(avg. (9.0 Euro/cents)/73.95=0.12
shares outstanding)=.245
This shows a small cash return on
This shows that the company’s stockholders’ investment, but this is
common stock investment potential relatively normal for a fast growing
increased significantly from the company.
previous year.
*Note: “On May 26, 2011, a
Shareholders’ Meeting of PRADA spa
resolved to change the par value of the
Company’s shares from Euro 1 to Euro
0.1 each. In accordance with IAS 33,
the number of shares in issue in 2010
was retrospectively adjusted for the
purposes of the calculation of earnings
per share.”Solvency Ratios 2011
Financing Gap:
Debt to Equity:
Days Payable:
1,112,601/2,226,984=0.50
(283,538(total accts.
This indicates that the shareholders, payable)/727,581
not the creditors, exert primary (COGS))x365=142 days
control in the company. This is a
positive sign in terms of solvency. Because the 2012 operating cycle
was 203 days, the company
experienced a financing gap of 61
days ; it was not able to self-finance,
i.e. it had to borrow money to pay
suppliers. However, the gap was not
particularly enormous, and
somewhat of a gap is relatively
normal for luxury retailers. This
does necessarily signify that the
company may be in trouble
financially.Solvency Ratios 2012
Debt to Equity: Financing Gap:
1,054,787/2,320,022=0452 Days Payable
This indicates that the shareholders, (845,720 (total accts.
not the creditors, exert primary payable)/920,678(COGS))x365=
control in the company (even more 131 days
than the previous year!). This is a
positive sign in terms of solvency, Because the 2013 operating cycle
showing that the shareholders exert was 180 days, the company did
more control this fiscal year than the experienced a financing gap of 49
last. It serves as a positive sign for days (shorter than the previous
the Prada Group in terms of its year); it was not able to self-finance,
shareholders’ equity and long-term i.e. it had to borrow money to pay
liabilities position. It is a number suppliers. However, the gap was not
that looks positive for potential particularly enormous, and
investors. somewhat of a gap is relatively
normal for luxury retailers. This
does not in any way signify that the
company may be in trouble
financially.Industry Situation &
Company Plans
In its annual report, the Prada It is this outlook that has served
Group emphasized its as the basis of the Prada Group’s
commitment to creating a activity and has led to the success
certain style, one that extends of the Group’s brands; Prada,
well beyond purely the physical
Miu Miu, Church’s and Car Shoes.
manufacturing of the products
for which the Group is known. The Group maintains its
The Group cites “interest and dedication to quality and superb
careful observation of the craftsmanship, which it insists
world” in allowing it to achieve results in an “exclusive
the originality and innovation relationship between each
that has, in turn, resulted in a customer and the Prada Group
“new way of creating fashion.” brands” and represents a core
http://www.pradagroup.com/documents/announcement/E tenant behind the Group’s
-Annual-Report-2012.pdf
continued success.
http://www.pradagroup.com/documents/announcement/E
-Annual-Report-2012.pdfIndustry Situation &
Company Plans
Based on the financial success its past fiscal
year, the Prada Group expressed plans to
continue with the “brand positioning” and
“retail expansion” strategies it has been
employing in recent years. The Group
maintains its conviction that these
strategies will again prove successful
despite a consistently “challenging”
economic landscape.
http://www.pradagroup.com/documents/announcement/E-Annual-Report-2012.pdf (Outlook for 2013)Industry Situation &
Company Plans
The Prada Group achieved much A recent press release
of its financial success this past announced the opening of a
fiscal year owing largely in part to Miu Miu store in Abu Dhabi,
the strength of its Asian market. marking the Group’s continued
However, the company still has effort to expand into markets
“room to grow” in luxury good where it has yet to meet its full
markets where it currently sales potential.
occupies a smaller influence, like
http://www.pradagroup.com/system/pdfs/100/original/Miu
South America and the Middle %20Miu%20Abu%20Dhabi%20Marina%20Mall_ENG.pdf
East, and plans to focus on these
areas, as well as US department
stores, in the coming year.
http://www.accessoriesmagazine.com/67609/pradas-full-year-
profit-jumps-plans-new-focus-on-u-s-south-america-mideastExecutive Summary
The Prada Group has seemingly mastered the art of
luxury branding and styling. The Group places high value
on impeccable presentation and true authenticity, while
honing in on marketing and sales strategies that have
continually proven successful in generating sales. I am
confident that so long as the Group continues in its current
direction, maintaining its focus on achieving the utmost
creativity and grace in the industry, it will continue to see
financial success and investor interest/support.You can also read
