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

Polo has a quick ratio of 1.63, which shows that polo’s’ current assets are equal to163% of the current liabilities.Polo’s’ days to receivables ratio is 60.8 days, which compares some what favorablywith Tommy Hilfiger’s, and Liz Cleburne’s. Gap does not have one due to they do alltheir selling themselves, they do not have smaller buyers buying their product it is all soldat retail.Polo’s Gross Profit margin is quite a bit higher then these other three competitorswhich are good, showing that polo’s profit is greater then the other three. Polo’sAccounts receivable turnover is sitting well at 6, Tommy Hilfiger has a little stronger at4.5, but Polo is quite a bit better than Liz Claiborne at 10.72. This is saying that Polocollects on its accounts receivable in about 61 days or 2 months, which is better thenmost companies who have a 90 day or three mo. turnover.Polo’s Sustainable Growth rate is good, as they plan on keeping growing at a 11%increase, which Liz Claiborne is the only competitor that is higher. Tommy Hilfiger’scould not be figured to the loss that they had in 2003. The debt to equity is .6 andcompared to the rest of the competitors that is much better then them, Tommy Hilfigerhas a .75 ratio, Liz Claiborne is slightly better then Tommy at .672, and Gap is very highat 1.1. It is good for polo to be the best in this category, because debt is a lot cheaper theequity.Financial Statement Forecasting MethodologyForecasting future numbers for Polo Ralph Lauren requires an assumption thatcurrent trends will persist into the future. By starting with the sales trends of the past fewyears, future sales growth can be predicted, which has a profound effect on the rest of theitems to be forecast. The average growth in sales since 2000 has been 7.95%, and thecurrent trend for sales growth is increasing. An assumption of a sales increase of 8% ispractical in this case. Sales growth is likely to continue at this rate, with a slight decreaseto 7% over time due to growth limitations. The profit margin has been steady over thepast five years and is likely to maintain its position, so the five-year average of 48.88% isapplied to predict future profits. Due to the steady operating expense ratio trend, the25