Basic profitability ratios Grupo Inditex is a fast-growing Spanish-owned clothing retailer. Its leading store brand is Zara
Question:
Basic profitability ratios Grupo Inditex is a fast-growing Spanish-owned clothing retailer. Its leading store brand is Zara but it owns several other well-known chains – Massimo Dutti, Pull & Bear, Bershka, Stradivarius. At the end of 2001, the group had almost 1,300 stores in 39 countries. Inditex launched an initial public offering of its shares in May 2001. By the end of the financial year (31 January 2002), the share price had risen 45% above the issue price and the company’s market capitalisation was A13.8 billion.
Set out in Exhibit 3.10 are income statements and balance sheets condensed from those reported in the group’s 2000 and 2001 accounts.
Required
(a) Calculate the following ratios for Grupo Inditex in 2001 (year to 31 January 2002):
(i) gross profit-to-sales ratio;
(ii) net profit-to-sales ratio;
(iii) assets turnover;
(iv) return on assets;
(v) return on equity.
(b) Grupo Inditex reported improved performance in 2001 on the following measures of profitability:
profit margin ratio, ROA and ROE. However, the scale of improvement differed across the various measures. For example, ROA was 19.6%, and ROE 25.1%, in 2000 (year to 31 January 2001).
From the information in Exhibit 3.10, identify one or more reasons why the increase in ROA rose faster than the increase in ROE between 2000 and 2001.AppenedixLO1
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