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.
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.
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.
- 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.
- 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.
- 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||Ikea||West Elm|
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 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 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 ratios||Ikea||West Elm|
|Return on assets||7%||13%|
|Return on equity||10%||0.252186|
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 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||Ikea||West Elm|
|Days of sales outstanding||28.20932||4.963606|
|Cost of goods sold||18,221||2,898,215|
|Days on inventory on hand||104.4159||107.1029|
|Average total assets||47339.5||2333506|
|Total assets turn over||0.68987||2.013588|
|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|
|Working capital turnover||43%||-0.0016|
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.
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.
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 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 to asset ratio||0.302247||0.474438|
|Long-term debt to asset ratio||0.04121||0|
|Total shareholders’ equity||34,896||1,224,706|
|Total debt to equity ratio||0.433173||0.902724|
|Total shareholders’ equity||34,896||1,224,706|
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.
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.
- 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