Laura Ashley Case Study - ROCE Ratio analysis and Laure Ashley's American market.

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Laura Ashley Holdings plc: The Battle for Survival

June 14, 2011

London based Laura Ashley proved to be a successful garment brand from her establishment in 50s till the end of 80s by means of her expert in the fast, flexible production of quality fabrics manufactured in small runs. However the expansion policies and acquisitions at the end of 80s have brought some emerging problems. Massive overproduction and delivery problems associated with sales and closure of non-core businesses and plants took the company away from an expansion path to a retrenchment period. Financial performance of the company starts to deteriorate during this period and hit the bottom in 1995.

  1. ROCE is a ratio that indicates the efficiency and profitability of a company's capital investments. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings.
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Although some improvements are observed in ROCE in 1996 and 1997, so high negative ROCE in the last two years is not only a clear indication of the company’s capital investments are inefficient and unprofitable but also company is having a very poor financial performance and it is bleeding so much.  

To upside-down the current poor financial problems, Laura Ashley appointed Ann Iverson and David Hoare June respectively between June 1995 and February 1999, however both could not be a remedy for the company to stop the financial losses.

In April 1998, 40% of Laura ...

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