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

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Introduction

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. a. 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. 1999 1998 1997 1996 1995 1994 Operating Profit/Loss -16.6 -36 14.4 9.2 -29.3 2.3 Equity Shareholders' Funds 19.7 70.1 63 55.7 86.1 85.5 ROCE -0.84264 -0.51355 0.228571 0.165171 -0.3403 0.026901 1 Although some improvements are observed in ROCE in 1996 and 1997, so high negative ROCE in ...read more.

Middle

The decline in Laura Ashley sales in 1998 and negative profits in 1997 and 1998 show that this strategy was not able to bring operational profits in the North American market. Now that the recovery program would require �20million for store closes and �6.5million is needed to upgrade the logistics and information systems. The goal of the company is very simple "to survive". b. In order to survive, there is only one option in front of the company; leaving from the North America Market. The company cannot get any more loss in current situation. They have already tried two times in North America, and they collapsed in both of them. Also, the company does not have enough resource right now. As a result of this, MOI should invest �26.5 million to Laura Ashley. �20 million is for store closures, and �6.5 million is needed to upgrade its logistics and information systems. On the other hand, inventory turnover rate is the lowest one among the competitors, so the company can improve it by using the �6.5 million for it. ...read more.

Conclusion

Moreover, in last years, there is no detailed market research that the company conducted. The new market research can be conducted about preference of American consumers. If the company combines the data from past sales and market research, it can reach more reasonable demand forecast. As it is stated by Ann Iverson, there is a potential audience of over 19 million female shoppers in USA. Especially, there is a major opportunity in North America for lifestyle brands aim at 30-50 year old customers. In order to capture this opportunities, the company can turn back the North America market after a while. According to preference of those customers, products should be designed. For UK, Continental Europe and other areas, older strategies can remain same. In case of decrease in sales, new strategies (accurate response, market research) that are followed in North America can be applied in these areas. 1 http://www.valuebasedmanagement.net/methods_roce.html ?? ?? ?? ?? Laura Ashley Holdings plc: The Battle for Survival June 14, 2011 1 ...read more.

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