Tiffany Case Hbs

1543 words 7 pages
Key issue:
Tiffany and Co concluded an agreement with its Japanese Distributor, Mitsukoshi Limited. Tiffany & Co Japan assumed management responsibilities of the operation of 29 boutiques and was now responsible for millions of dollars of inventory that was previously sold wholesale to Mitsukoshi Limited. Tiffany & Co Japan now faces the risk of foreign currency fluctuations previously borne by Mitsukoshi Limited. Tiffany & Co Japan must now make the decision between basic hedging alternatives: Entering into forward agreements to sell yen for dollars or purchasing a yen put option.
Exposure
As Tiffany & Co’s receivable cash flows are now denominated in ¥ due at future date the firm now faces the foreign exchanges
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Financial size-up
Tiffany and Co. is a profitable firm despite posting a loss of ($31,513,000) in the first half of FY 1993 which can be attributed to the repurchasing of inventory from Mitsukoshi. The repurchase of inventory has also has had an impact on gross margin which decreased from 49.4% in 1991 to 48.7% in FY 1992 much of which can be attributed to decline Japanese wholesale purchases from 23% of Tiffany’s total sales in FY 1991 to 15% in FY 1992. Capital expenditure has decreased from 41.4m in FY 1991 to 22.8m in FY 1992 with an expected further drop to 18.0m in FY 1993 this reduction highlights expected limited expansion operations in Japan. Tiffany & Co has increased its current assets in the first half of FY1993 from $330,676,000 in FY 1992 to 330,676. Cash and short term assets have decreased from 6,672,000 in FY 1992 to $6,665,000 in the first half of FY 1993. Inventories have increased in the first half of FY 1993 due to repurchase of Japanese inventory. Significant increases to accounts payable is the primary reason for the increase to total current liabilities. Due to the loss posted in the first half of FY 1993 no income taxes are payable. Tiffany & Co. has adequate liquidity with quick and current ratios of 3.2 and 0.75 respectively in FY 1992 despite these figures decreasing to 2.57 and 0.64 as a result of

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