Estee Lauder Financial Ratio Analysis
The purpose of this report is to highlight and assess the financial strength of Estee Lauder. This report will cover Estee Lauder’s Profitability, Liquidity, Leverage and Activity Ratios, which will be 19 key ratios. Secondly, these ratios will be interpreted to evaluate the current performance of the company with its historic figures of prior three years. Lastly, all these ratios will be compared with Cosmetics and Beauty Industry average and its competitor L’Oreal in 2012.
Table # 1 Summary of Key Financial Ratios of Estee Lauder Estee Lauder Financial Ratios | RATIOS | (MRQ)2012 | FY 2011 | FY 2010 | Industry | L’Oreal SA. | Profitability Ratios % | | | | | | Gross Profit Margin | 80.40% | 78.01% |
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Table # 3 Liquidity Ratios Liquidity Ratios | 2012 | 2011 | 2010 | Industry | L’Oreal | Current Ratio | 1.81 | 1.90 | 1.99 | 0.50 | 1.08 | Quick Ratio | 1.35 | 1.13 | 1.19 | 0.39 | 0.67 | Inventory to Net Working Capital | 3.47 | 4.35 | 2.66 | 8.02 | 6.34 | The current ratio measures the extent to which the claims of short-term creditors are covered by assets that can be quickly converted into cash. Estee Lauder’s current ratio is decreasing from 1.99 to 1.81. For every dollar of short-term obligations, Estee Lauder has $1.81 available in assets that can be converted to cash in the short term. Both Estee Lauder and L’Oreal’s current ratios are far greater than the industry average, which means these two companies are capable of paying their short-term financial standing and Estee Lauder is performing better. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid asset. The quick ratio is more conservative than the current ratio, a well-known liquidity measure, because it excludes inventory from current assets (Investopedia, 2012b). In 2011, the quick ratio of Estee Lauder has decreased a little bit. For 2012, the quick ratio of Estee Lauder is 1.35, which means that for every dollar that of their short-term obligation, the company has $1.35 available in assets to cover this debt. Compared to the industry and L’Oreal with quick ratio of 0.39 and 0.67, Estee Lauder is in a better