Business Case Studies & Business Publications

Evaluating Financial and Operational Per...

Weiss, Elliott N.,...

Case

Evaluating Financial and Operational Performance in the Retail Apparel Industry, 2016

Weiss, Elliott N.; Goldberg, Rebecca

OM-1557 | Published August 30, 2016 | 18 pages Case

Collection: Darden School of Business

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This case is suitable for management students who have already been exposed to the basics of accounting and operations-management decision making. It builds business intuition that integrates concepts from the courses of operations, accounting, and finance. As such, it is appropriate in an operations course, or in an introductory finance/accounting course. Students examine the financial statements of four competitors in the global retail apparel industry and calculate the financial ratios that comprise the return on equity for each. Then, they critically evaluate the links between each company's financial ratios and its unique operations strategy and financial situation. As a result, students gain insight into the effects that strategic operations management and financial decisions can have on financial statements and important financial ratios, as well as the insights one can gain by examining the equivalent ratios of close competitors. This case begins with an overview of the market forces that have the greatest effect on the global retail apparel industry. A brief overview of the history of the industry and how it has developed since the 1980s is provided as a backdrop to illustrate the financial and operations-management decisions that have been made by the four companies profiled. Then, a high-level introduction is provided for each of four major competitors: The Gap, Inc.; H&M Hennes & Mauritz AB; Urban Outfitters, Inc.; and Industria de Diseño Textil, S.A. The short company profiles include a description of each company's portfolio of brands, overall positioning and operations strategy, outsourcing decisions, history, and financial situation. Finally, a series of exhibits provides income statement and balance sheet information for each company.

Learning objectives for this case include: • Use an income statement and balance sheet to identify the factors that affect a firm's return-on-equity (ROE). • Calculate ROE. • Consider the various factors that may have an effect on important financial ratios. • Consider the various factors that may cause these ratios to change over time. • Explore important links between operations-management decisions, financial structure decisions, and the profitability of the firm.