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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 asset 24,657 1391923
Current liability 11,084 875,948
Current ratio 2.22 1.589048
Inventory 5,498 887,701
Current liability 11,084 875,948
Quick ratio 1.729 1.013417
Cash 16,659 222,927
Current liability 11,084 875,948
Cash ratio 1.502977 0.254498
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 income 3,512 308,854
Total assets 47,340 2,333,506
Profit margin 7% 13%
Return on assets 7% 13%
Net income 3,512 308,854
Sales 32,658 4,698,719
Assets 50,012 2,330,277
Equity 34,896 1,224,706
Net income/sales 11% 0.065732
Sales/assets 0.65 2.016378
Assets/equity 1.433173 1.902724
Return on equity 10% 0.252186
Operating profit 4,049 502,265
Net sales 32,658 4,698,719
Operating margin 0.1240 0.106894
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 sales 32,658 4,698,719
Average receivable 2524 63897.5
Receivable turnover 12.93899 73.53526
Days of sales outstanding 28.20932 4.963606
Cost of goods sold 18,221 2,898,215
Average inventory 5212.5 850430.5
Inventory turnover 3.495635 3.407939
Days on inventory on hand 104.4159 107.1029
Revenue 32,658 4,698,719
Average total assets 47339.5 2333506
Total assets turn over 0.68987 2.013588
Revenue 32,658 4,698,719
Average net fixed assets 22830.5 938354
Fixed asset turn over 1.430455 5.007406
 Working capital for 2015 For 2015 For 2015
Current Asset-current liabilities 13573 515975
 Working capital for 2014 For 2014 For 2014
Current Asset-current liabilities 14710 -530975
Average working capital 14141.5 -7500
Revenue 32,658 4,698,719
Working capital turnover 43% -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 debt 15116 1,105,571
Total assets 50,012 2,330,277
Total debt to asset ratio 0.302247 0.474438
Long-term debt 2,061 0
Total assets 50,012 2,330,277
Long-term debt to asset ratio 0.04121 0
Total debt 15116 1,105,571
Total shareholders’ equity 34,896 1,224,706
Total debt to equity ratio 0.433173 0.902724
Total assets 50,012 2,330,277
Total shareholders’ equity 34,896 1,224,706
Equity multiplier 1.433173 1.902724
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: https://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 https://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: https://ir.williams-sonomainc.com/sites/williams-sonomainc.investorhq.businesswire.com/files/doc_library/file/WS_15AR.pdf

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