QUESTION 21

1. The tables below display some of the key financial ratios calculated for Zara (ITX SM) during the last five years. Discuss the ROE Decomposition of the company and evaluate the drivers of its performance during this period. What trends can you identify in the companys performance? What do you believe has been the effect of the COVID-19 crisis on the company's financial statements?

   Zara (ITX SM)
   In Millions of USD except Per Share	FY 2018	FY 2019	FY 2020	FY 2021	FY 2022	Last 12M	FY 2023 Est	FY 2024 Est
   12 Months Ending	01/31/2018	01/31/2019	01/31/2020	01/31/2021	01/31/2022	01/31/2022	01/31/2023	01/31/2024
   Profit Margin	13.29	13.17	12.87	5.42	11.70	11.70	12.22	12.85
   Asset Turnover	1.27	1.25	1.13	0.74	1.00	1.00
   Financial Leverage	1.52	1.49	1.69	1.86	1.83	1.92
   Return on Common Equity	25.66	24.53	24.58	7.46	21.41	22.46	22.57	23.63
   Effective Tax Rate	22.5	22.13	22.09	21.20	22.60	23.04
   Net Interest Expense	-18.3	-16.4	139.6	140.4	128.2
   Revenue	28,965.70	30,701.5	31,587.4	23,474.7	32,591.5	32,591.5	31,323.5	32,958.0
   Net Operating Profit after Tax (NOPAT)	3,822.30	3,984.0	4,151.8	1,366.4	3,898.2	3,891.7
   Working Capital	6,175.20	5,996.4	4,552.9	5,603.8	6,251.2	6,251.2
   Total Non-Current Assets	12,520.50	12,668.3	18,815.6	18,757.3	17,213.3	17,213.3
   Net Debt	-7,929.50	-7,678.4	-1,384.3	-1,709.4	-3,965.9	-3,965.9	-11,118.8	-11,836.6
   Net Assets	16,787.60	16,812.0	16,568.0	17,652.1	17,680.0	17,680.0
   Total Equity	16,787.60	16,812.0	16,568.0	17,652.1	17,680.0	17,680.0
   Working Capital to Sales	0.19	0.20	0.17	0.21	0.18	0.18
   Net Fixed Asset Turnover	3.39	3.27	2.49	1.50	2.17	2.17
   Accounts Payable Turnover Days	126.62	130.14	131.14	165.34	128.97	128.97
   Days Sales Outstanding - DSO	6.47	6.22	6.17	8.34	6.20	6.20
   Inventory Days	86.24	87.01	72.90	93.22	82.25	82.25
   Cash Ratio	1.24	1.26	1.11	1.20	1.17	1.17
   Quick Ratio	1.32	1.35	1.18	1.26	1.23	1.23
   Current Ratio	1.96	1.97	1.56	1.73	1.69	1.69
   Total Debt to Total Equity	0.12	0.61	45.82	42.37	37.19	37.19
   Net Interest Coverage			38.37	12.50	39.44
   Cash From Operations	4,528.50	4,731.2	7,706.4	3,471.4	7,942.1
   Cash from Investing Activities	-951.20	-2,201.8	-2,653.3	2,892.6	-3,825.2
   Cash from Financing Activities	-2,645.50	-2,605.7	-5,149.2	-3,351.7	-4,560.2
   Dividends Paid	-2,431.70	-2,741.9	-3,060.9	-1,254.2	-2,577.6
   Capital Expenditures	-1,816.60	-1,633.4	-1,020.7	-537.3	-783.2		-1,151.6	-1,256.9
   CFO to Sales	15.63	15.41	24.40	14.79	24.37
   CFO to Total Debt	247.56	45.27	1.01	0.49	1.15
   Gross Margin	56.28	56.67	55.88	55.82	57.06	57.06
   Operating Margin	17.03	16.66	16.87	7.39	15.45	15.45	16.09	16.68
   Profit Margin	13.29	13.17	12.87	5.42	11.70	11.70	12.22	12.85