Business Valuation of Polo Ralph Lauren Corporation - Mark Moore ...

for the company. The Times Interest Earned has slightly increased from 2002. Thisindicates that the income from operations has become more efficient to cover the regularinterest expenses. The interest expense for 2001 was higher than usual, which indicatesthe low ratio for that year. The Debt Service Margin has not been steady over the past 5years. In 2001 it decreased to 1.16 because of the many changes in working capital andthe large amount of deferred taxes, which led to extremely low cash from operatingactivities. And then in 2004, this ratio is not available due to the fact that there was nocurrent notes payable. The Plant, Property, and Equipment Turnover (PP&E) isimportant to factor in because its the most important long term asset in a firms balancesheet. This ratio shows the efficiency in which the PP&E is used and also measures thisefficiency. It has remained steady over the past 4 years. But, it does show an increasefrom 2000-2001 because of the small revenue due to cost inefficiency of the year 2000.The Sustainable Growth Rate (SGR) for Polo Ralph Lauren is volatile because therewere no cash dividends paid from the years 2000-2003. So the SGR for those years is thereturn on equity ratios.These 16 ratios will help forecast Polo Ralph Lauren’s next five years. Theforecasts will be made for all of their financial statements. By looking at their pastperformances and analyzing their trends, Polo will be able to predict future numbers moreaccurately.Analysis of Competition:Polo Ralph Lauren is very similar to the other companies in its industry; we comparedPolo RL to its top 3 competitors in apparel industry. We calculated the ratios for years2000 to 2004, and then compared them to each other.Polo’s current ratio is very close with the other 4 competitors it is slightly lower thenLiz Cleburne’s and Gap’s. Tommy Hilfiger’s is just a bit higher. Polo has a current ratioof 2.54, which means that Polo must be able to convert each dollar of current assets toalmost .40 dollars (1/2.54) of cash to meet short-term obligations. Polo’s’ competitors arealso have to meet that obligation as they are right there together.24