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IKEA Financial Analysis

Introduction:

IKEA is a well-known global brand; it has hundreds of stores across the world. The company was founded in 1943, the company carries the range of 9500 products, which includes home furniture and accessories. The company showed the sales of 21.2 billion Euros in 2008. IKEA’s is showing an increase in it sales every year as it is focused on creating the life better every day for its customers. However, in 2015, the company estimated its total sales as 31.9 billion Euros. The total sale is increased by the 11.2 % (IKEA, 2015). The company is focused on the low price strategy, it serves the customer who is willing to buy better even at the lower prices. The company has the well-designed products at reasonable rates and the products are catering for everyday life style. IKEA’s goals of the business strategy include the combination of economy, society, and an environment.

SWOT Analysis:

IKEA’s uses SWOT analysis to reach the objectives or goals of the company, SWOT analysis is their one of the strategic planning tool; the company is focused on improving its strengths, opportunities and trying to overcome its weaknesses and threats. IKEA respond to both internal and external issues, the company in a proactive and dynamic manner retaining its strong identity in the market.

Internal Analysis:

Strengths:

The company is a strong global brand, which attracts the consumers.

  • The company has a wide range of products and at reasonable or lower prices.
  • The company measures its strengths by using the key performance indicator (KPI).
  • The company is cost conscious.
Weaknesses:
  • The company is not communicating with the customers.
  • Company focus more on cost leadership, this is reason quality sometimes suffer.
  • The company has competitors; it is difficult for a company to sustain.
  • Company reputation affects as it faces a number of accidents.

External Analysis:

Opportunities:
  • The company is growing its demand for the greener products.
  • The company is growing demand for the low-priced products.
  • The company can raise concerns about its quality, so the customers can more attract towards the products.
Threats:
  • The company has to face the decline in demand as if there is the increase in the customer’s income, they will prefer more quality product.
  • There are chances of emergence of businesses from Asia example, China, India etc.
  • Due to economic factors, the company can have issues in pricing strategy.
  • Market forces like lower prices or economies scale could also be a threat for the company.

IKEA Financial Analysis

Liquidity ratio

Liquidity ratio Ikea West Elm
Current asset24,6571391923
Current liability11,084875,948
Current ratio2.221.589048
Inventory5,498887,701
Current liability11,084875,948
Quick ratio1.7291.013417
Cash16,659222,927
Current liability11,084875,948
Cash ratio1.5029770.254498
Current ratio:

Current ratio of the Ikea Company is greater than its competitor West Elm that means, Ikea is more stable in paying its short-term liabilities with the help of its current assets.

Quick ratio:

Quick ratio is also known as acid test ratio. Quick ratio of the Ikea company is greater than its competitor West Elm that means, Ikea is more stable than West Elm in paying its current liabilities when it comes due with only quick assets.

Cash ratio:

Cash ratio of the Ikea company is greater than its competitor West Elm that means Ikea is more stable than West Elm in paying its current liabilities with the help of its cash and cash equivalence (Ikea, 2015) .

Profitability Ratio

Profitability ratios Ikea West Elm
Net income3,512308,854
Total assets47,3402,333,506
Profit margin7%13%
Return on assets7%13%
Net income3,512308,854
Sales32,6584,698,719
Assets50,0122,330,277
Equity34,8961,224,706
Net income/sales11%0.065732
Sales/assets0.652.016378
Assets/equity1.4331731.902724
Return on equity10%0.252186
Operating profit4,049502,265
Net sales32,6584,698,719
Operating margin0.12400.106894
Return on assets:

The return on asset ratio of the Ikea is lower than its competitor West Elm that mean, Ikea is not stable in compare to West Elm in earning profits in relation to its resources.

Return on equity:

the return on equity ratio of the Ikea is lower than its competitor West Elm that means, Ikeas has lower ability to generate profits with the help of its shareholders equity.

Operating margin:

Operating margin of Ikea is higher than its competitor West El m that means Ikea is generating more revenues than West Elm after its cost of good sold and paying other expenses (williams-sonomainc, 2014).

Activity ratio

Activity ratio Ikea West Elm
Annual sales32,6584,698,719
Average receivable252463897.5
Receivable turnover12.9389973.53526
Days of sales outstanding28.209324.963606
Cost of goods sold18,2212,898,215
Average inventory5212.5850430.5
Inventory turnover3.4956353.407939
Days on inventory on hand104.4159107.1029
Revenue32,6584,698,719
Average total assets47339.52333506
Total assets turn over0.689872.013588
Revenue32,6584,698,719
Average net fixed assets22830.5938354
Fixed asset turn over1.4304555.007406
 Working capital for 2015For 2015For 2015
Current Asset-current liabilities13573515975
 Working capital for 2014For 2014For 2014
Current Asset-current liabilities14710-530975
Average working capital14141.5-7500
Revenue32,6584,698,719
Working capital turnover43%-0.0016
Receivables turnover:

Receivable turnover is indicating that how much sales is generated with the help of receivables. This ratio indicates capacity to generate sales from receivables. Receivables turnover for the competitors is higher than the IKEA Company.

Day’s sales outstanding:

It indicates that how much day’s company takes for collecting its payment for credit sales. IKEA takes more time in collecting revenue from sales. It is 28 days for IKEA and 5 days for its competitor.

Inventory turnover:

It indicates that how much time inventory sold in the market. Higher ratio indicates higher demand for the inventory. It is same for both companies.

Asset turnover

It indicates that how much revenue is generating from assets. It indicates efficiency of utilizing assets by the company. This ratio is also higher for the competitor.

Fixed assets turnover:

This ratio only includes fixed assets. It indicates generating ability of revenue from fixed assets. Fixed assets turnover is lower for IKEA

Working capital:

Working capital indicates liquidity ability of the company. This is higher for IKEA. It is calculated by subtracting current liabilities from current assets.

Working capital turnover:

This ratio is higher for IKEA and it is indicating better liquidity for IKEA as compared to its competitors.

Financial leverage ratio

Financial leverage ratio Ikea West Elm
Total debt151161,105,571
Total assets50,0122,330,277
Total debt to asset ratio0.3022470.474438
Long-term debt2,0610
Total assets50,0122,330,277
Long-term debt to asset ratio0.041210
Total debt151161,105,571
Total shareholders’ equity34,8961,224,706
Total debt to equity ratio0.4331730.902724
Total assets50,0122,330,277
Total shareholders’ equity34,8961,224,706
Equity multiplier1.4331731.902724
Total debt to asset ratio:

Total debt to asset ratio explains the ability of proportion of the asset of the company which are financed by its debt. The ratio of Ikea is lower than West Elm that mean it has lower debt than its competitor West Elm.

Long-term debt to asset ratio:

Long-term debt ratio explain that the proportion of the company’s asset is financed by it long term debt. The table shows that the West Elm has not long-term debt as compared to Ikea. Ikeas has some long-term debts.

Total debt to equity ratio:

This ratio explains that how a company is financing its assets with its shareholder’s equity. Total

debt to equity ratio of Ikea is lower than West Elm that means it is more stable than West Elm.

Equity multiplier:

According to the table, the West elm company is utilizing large proportion of its debt as compared to Ikea in financing its assets.

Private or government:

Ikea is private company; it is not listed in the Stock Exchange because it is owned by foundation based in the Netherlands. So the stock of the company cannot be bought held or sold.

Recommendations for company

It is recommended for the company that it should focus on its efficiency ratios. It is recommended that it should invest on management abilities to improve this ratio. Company is strong in term of its liquidity position. Its liquidity ratio is strong. These are indicating that in future it can handle uncertainties. Liquidity ratios can provide it opportunity to invest in other sectors. It can further invest in the securities. It can use this excess cash to improve its payout ratio.

It can attract more investors by paying more divided. It is recommended that company should resolve its problems by taking actions like diversification. It can also reduce competition by investing in diversifying products. It can add diversifying products in its portfolio to improve its position in the market. It is recommended for the investors that they should buy these stocks because they are generating god earnings and dividends with the passage of time. IKEA should also invest in research and development due to its strong liquidity ratios. It should invest in these technologies to improve its quality of products to resolve its future issues.

Reference:
  • Ikea. (2015). Ikea Anual Report. Retrieved June 13, 2016, from ikea.com: http://www.ikea.com/ms/en_AU/pdf/yearly_summary/IKEA_Group_Yearly_Summary_2015.pdf
  • IKEA. (2015, Nov 9). IKEA Group reports solid sales growth for financial year 2015. Retrieved June 13, 2016, from http://www.ikea.com/gb/en/about_ikea/newsitem/IKEA-Group-reports-solid-sales-growth-FY15
  • williams-sonomainc. (2014). williams-sonomainc annual report. Retrieved June 13, 2016, from williams-sonomainc.com: http://ir.williams-sonomainc.com/sites/williams-sonomainc.investorhq.businesswire.com/files/doc_library/file/WS_15AR.pdf

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