Analyst Report Assignment
Organizational management decision is critical in facilitating success projection and further implementation of strategic measures. In reference to the subject companies, Calvin Klein and Gap (GPS) analysis of their financial performance will guide to prompting investment decisions considering their reputation in the recent times. Apparently, the retail sector is highly competitive with giant companies dominating the market creating an atmosphere for prompt response through intensive efforts to course improvement of the stock prices and increase it efficiency. Such an approach by both organizations profoundly responds in the inordinate aspect for industrial and firm analysis to offer suggestions for interested parties to make worth an investment. Calvin Klein and Gap have proved their worth over the years in maintaining their market dominance.
To lure investors in regards to the firms in this case, Calvin Klein and Gap they must be viewed as a reflection of the society financial preferences normalcy. The analysis of the financial systems helps to comprehend a firm’s accountability before making an investment decision; the financial analysis method is better placed to achieve the intention. The theories in advance accounting carries the concepts of managerial accounting emphasizes on precision of financial information to ensure the made decisions will positively influence the future, relevance, timeliness, and segment perform. In connection to the subjective case, ethical and sociological approach in line with the contingency theory is in practice that accounts for auditing information, managerial information financial transactions. The theory is objectively applicable, in the corporate world financial and management accountings are significant tools. Businesses use accounting to determine the operational plans for future prospects and reviewing the past performances in checking the entities progress and its functions.
In this regard, the reward, i.e. return on investment (ROI) can be viewed as the outcomes or the aftermath of making a decision. Usually, business operations are met with instances that we must make a decision for us for a course to occur. Similarly, financial advisors and investors through organization managers have the mandate to make a decision on behalf of the organization for continual procedures to happen. Without the consideration of the probable risks and uncertainty that might occur, the errors are bound to be made and can be detrimental to the larger organization. Usually, businesses operate under a huge chunk of uncertainties. On the other hand, effective management is defined by the confidence in risk taking on the available opportunities for the benefit of the organization.
Opportunity cost in regards to the uncertainty and reward tradeoff inferred in entrepreneurship. The risk/reward tradeoff infers in the prevalence of higher risk; the potential reward is overwhelmingly higher. Opportunity cost covers a large part of the “uncertainty” in the risk/reward tradeoff, though it fails to include the intangible aspects such as potential mortification caused by taking capital from supports and relatives with prospects of failure of the venture.
Stock Price Analysis
To be particularly objective in future investments, Calvin Klein (PVH) and Gap (GPS) retailers in the fashion industry remains on the helm of most sought companies by large investors due to their rapid expanding asset built on a sustainable competitive advantage. Though the fashion industry remains challenging and competitive, the stock prices have steadily rose which reflects the companies’ excellent performance and boosting investor confidence. The companies’ stock over the tear has continued to rise to more than $28 per share right from $17 in a matter of months. Stock analysts’ projects that the stock price will be on the surge forecasting a price of at least $33 (Iervolino pp. 18-19).
Basically, assets are the determining elements to evaluate the worth and capability of a firms’ functionality. Assets are a crucial to a firm due to the higher potential of generating cash flow. As such, operating assets refers to the produced goods and services that are available for selling to consumers. On the other, hand financial assets can be defined as the liquid capital that can be stored as excess cash to cater for operation reinvestments, recovering debts and paying out dividends to the shareholders. Cash and marketable securities are good examples of financial assets and can be used to acquire capital leases. Financial assets can be referred to as transactional instruments with higher purchasing power when converted to cash. For operating assets, the items include firms fixed assets, inventories and accounts receivable. In addition, the items regarded as operating assets are directly related to firms’ operations with the exception of liabilities. Differently, a clear illustration of operating assets can be stated as:
Firms total assets – All liabilities – Total financial assets + Total financial liabilities = Operating assets
Analysis of the Financial Profitability, Liquidity and Solvency
Analyzing the financial profitability, solvency and liquidity of Calvin Klein and Gap drawing form the available financial information it is apparent that a good investment decision is achievable to illustrate the companies’ financial health and stability. The assessment of the financial situation in the retail industry builds the fundamental base to conclude the performance of an organization (Jackling et al 2010)
The objective of every investor is to direct the finances to a worthy cause with the objective of maximizing on profitability and utilization of the available resource to course efficiency increasing the level of production units. Eventually, the shareholder value increases translating to impressive return on investment. The ratio of financial measurements judging from the generated income becomes essential in facilitating business continuity. Reference to the financial history to evaluate the long term and sustainable profitability of both companies, Calvin Klein and Gap, will ascertain if they are able to generate high returns for increased dividends to the shareholders (Bhatiya).
In the subject case, checking the capacity of Calvin Klein and Gap to their long-term financial commitment puts into perspective the commitment in determining their insolvency. Preforming an analysis of the solvency ratios offers information insights on the firms’ capital structure developing the financial leverage in the control of the accustomed companies. There are inherent risks involved due to instability of the solvency in the event of long-term debt obligations that could become a burden to the shareholders. Solvency ratios accommodate investors’ interests providing an opportunity to determine whether the existence of adequate cash flows to be enough proof of the organization commitment towards debt obligations.
The two factors that play and are dynamics in serving divergent factors. Management accounting presents and performs internally while financial accounting is purposely structure to function on an external context and in particular in the pretext of stakeholders. However, the financial management is significantly important in the contemporary setting in providing potential consumers and oversight institutions with insights and information prior to making decisions. Following the principles of accounting organization and data processing in preparation of financial statements with the objective of setting a course for accurate decision making. Referring to George Allen suppositions “the most appropriate definition of management, applicable in any corporation, is remaining transparent to the consumers through providing comprehensible and well organized financial information begetting accounts payable” (Strähle and Deniz pp. 232)
Liquidity refers to a firm resources and assets a clear indication that a company has the ability to pay short-term financial obligations by turning their assets in raising enough cash. In regards to the firms in question, the level of liquidity is more intensive. Calvin Klein and Gap are classic examples of a high intensive company. This is because circumstances may arise which makes it challenging in meeting the financial obligations in reducing debts and facilitating operations. Such state can be defined as liquidity crisis which causes doubts for worthy investment and leads to uncertainty inferences (Nielsen Vol. 39).
Determination of financial stability becomes a prerequisite for investors to make the best decision. Conversely, financial statements and reporting is usually complex to comprehend which makes good the financial and organization performance highly subjective for prompt decisions. Consequently, decision?making is at the preserve of the investors following conviction on the matter that organizational management to develop realistic financial projections. For instance, comprehensive evaluation must be performed by the financial managers in order to decide objectives such as the Calvin Klein and Gap profit objective, pricing strategy, willingness to assume risk, quality of product, and product line (Strähle and Deniz pp. 232).
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Strähle, Jochen, Bin Shen, and Deniz Köksal. “Sustainable fashion supply chain: adaption of the SSI-index for profiling the sustainability of fashion companies.” The International Journal of Business & Management 3.5 (2015): 232.