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The lower this ratio is, the greater risk for the company being unable to cover the loans and interests, the greater risk for the banks to lend money, moreover, increased risk to shareholders that banks may take over the company to repay the loans and interests. (Maguire & Wayte, 2007) In good times, banks would expect the interest cover of or more than 5 times in order to consider lending money, however, it is not unusual to see this coverage drop as low as 3 times. (Walton, 2002)

Analysis

For both retailers, I have interpreted 5 years of financial ratios, ZARA UK from 2005 to 2009, however, due to 2009 data of GUCCI UK is not been published on FAME, I have calculated from 2004 to 2008 instead and having to calculate the ratios for both retailers, we can now compare and identify their trends.

Mintel (2008) reported that for luxury brands, there was “solid performance” on sales during first quarter of 2008 when they were starting to see the effects from economic downturn, but Gucci experienced “softer growth”, indicating Gucci was doing slightly better than other retailers in UK luxury market.

Table 1a shows Gucci UK is improving in ROCE, which its stakeholders such as suppliers and lenders would be happy to see this growth for Gucci may be repaying loans and debts, though by looking at figures of shareholder's funds, Gucci seems to be asking shareholders to invest more but not paying dividends in return. Zara UK is not operating as good (see Table 1b), there is a significant decrease in 2008, indicating the return to lenders and suppliers is less though Zara is eliminating the long-term debts, and stakeholders may be worried continuous declining for the recession will not be recovered till 2011 as forecasted by Verdict (2009).

Turnover of both Zara and Gucci in UK increases steadily (see Table 2), however net profit declined rapidly in 2008 due to recession, interpreting a negative growth in net profit margin, though by calculating the gross profit margin, both retailers are doing as good with steady trend in past five years within 7% up and down even during the downturn in UK. Nevertheless, before recession gross profit margin for luxury markets researched by Verdict (2008) should be around 70%, indicating though Gucci's margin is not bad, though perhaps it is not operating as good as the rest of market segment. The trend (see Table 2c & 3c) of net profit ratio for both retailers is not quite healthy relating to the gross profit, perhaps suggesting for both retailers having more expenses including VAT, store rentals. For year 2010, VAT is announced to increase back to 17.5% from 15% in 2009, and if Gucci UK keeps expenses and sales unchanged, then its net profit most likely will decline continuously.

The norm for both current and acid test ratio is said to be around 1, by reviewing both ratios for Gucci and Zara in UK (see Table 4 & 5), the ratios of Zara are not too far off from the norm, is trying to keep to a stable level of risk and operating business in a better way having sufficient cash flow. Stakeholders would 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。