Accounting Essay

Contents 1. Introduction2 2. main(prenominal) Body2 2. 1 Ratio Analysis2 2. 1. 1 Profitability3 2. 1. 2 Efficiency4 2. 1. 3 Liquidity6 2. 1. 4 Risk7 2. 2 Evaluation of mulberry trees considers as a potency strayment funds7 2. 2. 1 R yetue and plough shell out damage8 2. 2. 2 take place10 2. 2. 3 Risk14 2. 3 backing and capital rise15 2. 3. 1 Funding depth psychology15 2. 3. 2 Working capital18 2. 4 Risk counseling and boldness20 2. 4. 1 Corporate governance of mulberry20 2. 4. 1 Risk & corroborate concern22 2. 4. 3 In buildation and Communication24 2. 4. 4 Monitoring24 3. Conclusion25 deferred payment26 1. IntroductionThe attach to that we chose is mulberry Group. PLC. This is a c aller-out that produces and sells bags and purses, as well as programs them for nearly(prenominal) soulfulnesss and new(prenominal)(a) companies. We substantiate chosen the stratumly proclaim of mulberry tree Group. PLC that gives us an in-depth view of the comp some(prenomi nal)s finance carrying out, entrustment potential, capital organise and manage in operation(p)(a)(a) during the period of condemnation which from mo winary family 2010 to 2011. With this yearbook state, we will try to break apart and critically app kick up the bon tons accounting study, groceryplace report and management image system.The succeeding(a) content will be included in this paper Ratio compend, investment re pass on, debt and capital analysis, governance and put on the line management. 2. principal(prenominal) Body 2. 1 Ratio Analysis Ratio analysis is oft propagation social occasiond in evaluating a follows m superstartary chassis. The financial dimensions be able to decl atomic number 18 integrityself us signifi kindlet information to examine the fraternitys financial performance. Depends on these dimensions, we stinker examine the condition of the companys finance and check whether the expirys of the companys operating meet its targets ( Atrill and Mclaney, 2008).Normally, we will use gold in flow, income statement and finance touch to aim ratios. In the ratio analysis parts, we will exercise and go the core ratios of mulberry tree plc, these ratios will excessively be the base of the chase parts of this article. fit in to mulberrys yearly report, during the financial year 2010 to 2011, the company has experienced a successful year. mulberry Groups traffic primarily focused on the UK mart, and the revenues of this company comprised retail and income of design, as the demand of its products annexd strongly during the past financial year, the f bes raise promptly.In this part, we will try to analyze the core ratios of the company and simply analyze the probable reason for the changes of these ratios. 2. 1. 1 Profitability To break up a companys arrive atability, at that place be three ratios concerned gross circumference, net tolerance and re unfreeze on capital employed (Collier, 2009). beginnin g(a)ly, we will mind into gross circumference. This margin principally shows the relations between the costs and the equipment casualty of immaculate honourables. Gross margin (2011 65. 35% 201058. 97%) Gross margin is (Sales cost of bargains)/sales * snow% The gross margin in 2011 79501 / 121645*100%=65. 35 % The gross margin in 201042487 /72052*100%=58. 7 % From the ratio, we cigarette see that the gross margin of mulberry tree attach to 65. 35% in 2011 from 58. 97% in 2010. The reasons that peck cause changes in gross margin is the changes in footings and costs. In mulberry trees case, the naughtyer gross margin results from the dramatic improvement in revenue as well as cost of sales. According to shade 5, apart from the growth in sale of goods which caused by the impressive performance in tender oversea stores and online stores, the 900,000 income, which disclose in opposite income, received on the exit of the wise fastening Street lease as well contri h oweveres to the augment in revenue.Net margin (201118. 92% 20106. 74%) Net margin is an important ratio to examine a companys profitability. The formula is Net margin=Operating profit / sales * 100%, and the ratio for Mulberry is The net margin in 2011 23010/121645*100%=18. 92 % The net margin in 2010 4856/72052*100%=6. 74% Net margin is closely connected with gross margin. From the information above, we put forward see that during the last year, the gross margin of this company has amplification. exactly the surviving of the increase of net margin is elder high schooler than it of the gross margin.The most critical factor result in the increase of operating profit is the operating profit before exceptional items. Details closely those exceptional items prat be institute in Note 7 that a deferred setting of ? 1,000,000 has been paid to Challice Limited in legal injury of the growth in the ground forces operations. heel counter on capital employed (201155. 54% 201019. 2 6%) thrust on capital employed shows the ability of the company to get rewards which evoke be added into its faithfulness through companys operating behaviors (Atrill and Mclaney, 2008)Return on capital employed Operating profit / assets- incumbent liabilities) * 100% Return on capital employed in 2011 23010/ (76587-34555)*100%=55. 54 % Return on capital employed in 2010 4856/ (40284-13819)*100%=19. 26% From the ratio above, it is comfortable to find that the return on capital has raised rapidly in last year, from 19. 26% to 55. 54%. ROCE increase not and because the growth in operating profit and raised asset which mainly contri unlessed by increase inventories as a result of the demand of festering sales and foxiness receivables.The trade creditors as well as accruals and deferred income sacrifice been included in menstruation liabilities since all of them could be paid in spite of appearance 12 months. Moreover, on that point are ? 1,000,000 provision for the USA de ferred consideration, ? 3,900,000 relating to patch uproll and aid repairments made post year end cut off and ? 1,537,000 accruals for wintry assets happened in 2011 while there were all nil in 2010. 2. 1. 2 Efficiency Based on Colliers study (2009), there are three core ratios that are usually used to apprizevas a companys efficiency, they are asset overturn, entrepot upset and sales per employee.The first two ratios are used to measure the efficiency of the companys operating of turning its property to generate marketing behaviors and sales, the sales per employee is try to evaluate the employees performance. asset turnover (20115. 90x 20106. 70x) Asset turnover Sales / non- original assets, from it we can calculate Asset turnover in 2011 121645/20620=5. 90x Asset turnover in 2010 72052/10760=6. 70x The asset turnover has more than(prenominal)(prenominal) or less fallen, from 6. 70 to 5. 90. The drop of asset turnover indicates a less efficiency use of officehold ers assets in terms of sales, although the revenue has change magnitude dramatically.However, according to Note 16, it might because the investment in software of ? 615,000 which cost nil in 2010. It also can be furnished that the return of investment can be efficacious and huge if invest on new stores or flagship, however, it could also be inefficient but esteemingful return on investment if invest on software, such as ERP system, which might be over costd and submit much more time to gain benefit from them. Stock turn (2011 1. 9x 20103. 3x) The main occupancy of Mulberry is design and retail, according to Colliers work (2009), line turn is peerless of the most important ratio to evaluate the companys management of its declination.Stock turn damage of sale / germinate Stock turn in 2011 42144/22408=1. 9x Stock turn in 2010 29565/9090=3. 3x The stock turn in 2011 is lower than it in 2010. That heart the stock of Mulberry turns 1. 9 generation severally year now. The considerably increase in inventories which relate to the growing demand of sales of goods has contributed to the decline of stock turn. This ratio should be one of the most important ratios of it (Atrill and Mclaney, 2008). Stock turn stands for how many times the stock will turn in a year.Generally, it is important because some businesses treat excessively much stock as a waste of sources and a high stock turnover rate will usually be regarded as a sign of good management. Although in 2011, there is a light from 3. 3 to 1. 9, it didnt needfully mean the companys management of stock had some problems because the inventories of the company has increased rapidly as we discussed before. As a retailer, the inventories are precise important to ensure its market position and the increase of inventories as a result of preparation for market exploring is reasonable. 2. . 3 Liquidity Atrill and Mclaney (2008) give tongue to that the liquidness stands for the concisely-run finance abi lity of the company. The ratios that generally used to break apart fluidness are real ratio, and demigod test. Current ratio (20111. 62x 20102. 14x) First of all, current ratio stands for the proportion between current assets and current liabilities. It is used to analyse the companys ability to repay its short-term liabilities. High current ratio means the company has generous property to reach out its debt, if the current ratio was below 1, the company could be in danger.However, a too high current ratio might mean the company doesnt gain ground full use of its property. Current ratio Current assets / current liabilities Current ratio in 2011 55967/34555=1. 62x Current ratio in 2010 29524/13819=2. 14x According to Note 24, the decrease of current ratio mainly because of the current liabilities has increased more than current assets because of those trade payables in current liabilities that not hold up in 2010. pane of glass test (20110. 97x 20101. 48x) Acid test is a rat io which trying to evaluate the companys monetary asset.Different from current ratio, acid test is focusing on whether the company can repay its short-term liabilities with its monetary assets. Acid test Monetary current assets / current liabilities Acid test in 2011 33519/34555=0. 97x Acid test in 2011 20453/13819=1. 48x Because there is high level of fund in 2011 in arrange to support the passable amount of goods to be sale, it is not unacceptable that the monetary current assets without inventory are less than current liabilities for this year. Furthermore, there are several trade payables occurred in 2011 while nil in 2010 in terms of Note 24. . 1. 4 Risk Interest cover (2011531. 57x 2010 197. 00x) The arouse cover has increased as a result of much higher profit since it can be seen in Note 22 that there is no changes in borrowings these two days. Therefore, it can be a good thing to pctholders that vex cover increased healthily. The confusing things we found in the annua l report were that there is no debt within these two years, exactly borrowings can be taken into consideration the put on the line. The details about borrowings can be found in Note 22 that seems all the borrowings are repayable on demand.So, we cant analyze the risk of this company through these ratios. The reasons why the company didnt borrow semipermanent loans from wedges and the advantages as well as disadvantages will be discussed in risk management analysis and reenforcement analysis part. The investor part will be analysed in next part, in the form of buying shares. 2. 2 Evaluation of Mulberrys shares as a potential investment Mulberry has experienced a significant growth in revenue from 2010 to 2011 and the basic earnings per share increased by 473% to 29. 8p while it was 5. 2p in 2010, both of which are shareholders would uniform to appreciate.Moreover, it might be out of question that those figures would attract a good deal of investment. However, it is always neces sary to assess whether it is an appropriate timing to invest a company in terms of several financial indicators, such as, market value of faithfulness, the P/E ratio (price earnings ratio), dividend yield as well as gear wheel (Fonseka and Tian, 2011). This part is going to critically interpret these indicators respectively aft(prenominal) an overview on the fundamental financial circumstances and provide a suggestion for investment in the end. . 2. 1 Revenue and Share price ? m 2011 2010 2009 2008 2007 Revenue 121,645 72,052 58,585 51,174 45,078 Share price (p) 1,333. 33 183. 33 64. 52 133. 33 187. 5 (Table 1) Before conducting a thorough analysis of return and risk, it is expense reviewing Mulberrys revenue for last five-spot years.It can be seen from Table 1 that Mulberry has kept a sustainable growth in revenue since 2007, which indicates the optimistic picture of their financial condition. Furthermore, it is remarkable that Mulberry group performed satisfyingly as usual even when other organisation experienced a depressing year result from the financial crisis happened in 2009. pic(Figure 1) However, comparing the FTSE All-Share, which is a market-capitalisation weighted index of all shares traded listed on the London Stock Exchanges main market (Ince and Porter, 2006), Mulberry groups share price has changed significantly since may 2011.As can be seen from Figure 1, the share price has increased dramatically later on May in 2010 while the FTSE All-Share index has gone up slightly with fluctuation. pic (Figure 2) Furthermore, according to Figure 2, which clearly shows Mulberrys share price combined with FTSE All-Share index from 2007 to May 2010, the performance of Mulberry basically enable the share price to track market all the time. Although the price touched bottom in 2009 due to the financial crisis, when there has been an uptrend in market between April in 2009 and April in 2010, Mulberry seemed to catch that hazard and in April 2010, he price went up to the price peaked catamenia in 2007. It is crucial to mention that the marketing schema as well as the performance of Mulberry group has contributed most to the significant increase since the second one-half year of 2009. According to Mulberrys annual report and financial statement for the year ended 31 action 2010, they have endlessly invested their business both in the UK and internationally, using kept up(p) profit and capital flow.For example, the showrooms opened in New York and Paris could be successful attempts, both of which have vie an important role in the growth of profit. In terms of the strategy has made an initial success, it can be assumed that there might be an unpredictable potential market share for Mulberry to explore. Actually, the assumption has been approved with the significant increase in revenue and share price for the next half year in 2010 and continued in 2011. pic (Figure 3) Figure 3 shows Mulberrys one-year share price associat ed with FTSE All-Share index comparison starting with June in 2010.As can be seen from this chart, the price of Mulberry increased too enormously to see the change of FTSE All-Share index, which means Mulberry performed outstanding when the general financial background was not optimistic. Although it is rare to see the share price be restored and grow in such a short time after the financial crisis, the increase of Mulberrys might had already been predicted and both managers and shareholders are confident enough to take more market share. Consequently, the compulsive attempts of opening 9 new stores and on-line shop during the next half year of 2010 have been achieved successfully.Fortunately, the dramatic revenue increase harvested by those new stores and flagship indicates the significant demand of Mulberrys products and services existing in market. In addition, the remarkable performance attracts more investors. However, it is crucial for them to weigh if it is a good timing t o invest even though the performance of Mulberry after the financial crisis is extraordinary brilliant. Thus a depth analysis in terms of both return and risk will be conducted in the following sections. 2. 2. 2 Return bell / earnings ratio (P/E Ratio) Price earnings ratio indicates that the vulgar stock of a company is priced in terms of the ability to generate earnings of this company. Meanwhile, it also can be used to examine whether a stock is cheap or expensive (Muresan and Wolitzer, 2001). ? m 2011 2010 2009 2008 2007 P/E Ratio (adjusted)45. 20 27. 60 14. 30 22. 20 23. 00 (Table 2)Table 2 shows the adjusted P/E ratio of Mulberry between 2007 and 2011. Comparing with the persistence increase in revenue, the P/E ratio, which cerebrate to shareholders as well as potential investors, still has declined since 2008. However, the decrease is completely reasonable because the share price was influenced by the hellish stinting circumstances. In addition, to some extent, it is the financial crisis that reminds Mulberry to consider dilate their business internationally rather than focus on UK local market in ordering to distract risk.According to Mulberrys five-year P/E ratio, the expanding upon strategy enables the company not only to recover from the financial crisis but also to double their share price. However, it is also indispensible to take the probability of continuous earnings growth into account, regardless of the appealing doubled return indicated by the P/E ratio. In terms of Mulberrys following strategy will concentrate on production capacity magnification to meet the growing demand, the significant ability of generating earnings may be guaranteed and remained, even though it seems impossible to gain the similar incredible increase in revenue next year.Consequently, although Mulberry is a company worth investing since it has extraordinary performance in reacting to crisis, as well as the extensive demand for their products in the market, the best timing of investment in Mulberry has already lost. Market capitalisation (value of equity) The market value of equity is a measurement of present value of all future currency flows to shareholders from both assets and future investment opportunities (Adam and Goyal, 2008). It can be cipher by P/E ratio time earnings which is the gelt after tax. ? m 2011 2010 2009 2008 2007 Share price (p) 1,333. 33 183. 33 64. 52 133. 33 187. 5 Market value of equity 771. 11 81. 97 36. 89 76. 37 91. 54 P/E Ratio (adjusted) 45. 20 27. 60 14. 30 22. 20 23. 00 Profits after tax 17. 06 2. 7 2. 58 3. 44 3. 98 Equity 42. 03 26. 47 24. 38 22. 52 16. 87 (Table 3) According to table 3, the market value of equity changed with share price instead of the number of equity. However, it is remarkable that even when the market value of equity decreased by half in 2009, it still surpassed the equity in that year. Additionally, with the dramatic growth in revenue, the market value of equity has increas ed by nearly 95% to 771. 1 million between 2010 and 2011, which gives the self-assertion not only to shareholders but also some potential investors. Nevertheless, if investors stubborn to invest Mulberry now, it is possible to have two results in terms of return. Firstly, investing for short-term, investors would buy shares with an extremely higher price than two years ago whereas the return would be incredibly smaller. Secondly, investors may harvest a steady return in a long investment and there might be another significant increase when Mulberry conducts some other expansion strategies.Dividend yield Dividend yield can be calculated by taking the dividend per share and divide by the share price. To analysis the investment opportunity with dividend yield, this part applies Burberry as a competitive objective. up to now though Mulberrys share price overweighed Burberrys slightly in 2011, Burberry has a much longer history with high share price as in a equivalent industry. Tabl e 4 provides the share price, dividends per share as well as dividend yield for Mulberry and Table 5 shows Burberrys. Mulberry group plc ? m 2011 2010 2009 2008 2007 Share price (p) 1,333. 33 183. 33 64. 52 133. 33 187. 5 Dividends per share 4. 00 2. 20 2. 00 2. 00 1. 50 (p) Dividend yield 0. 30% 1. 20% 3. 10% 1. 50% 0. 0% (Table 4) Burberry group plc ? m 2011 2010 2009 2008 2007 Share price (p) 1,176. 47 700 279. 07 444. 44 656. 25 Dividends per share 20. 00 14. 00 12. 00 12. 00 10. 50 (p) Dividend yield 1. 70% 2. 00% 4. 0% 2. 70% 1. 60% (Table 5) With comparing Table 4 and Table 5, it is obviously that Mulberry has not adjusted their dividends instantly when the share price increased significantly, which results in the unpleasant dividend yield this year. In this circumstance, Burberry seems a wiser investing choice since the 5 times dividends per share of Mulberrys, which will generate more returns for investors. However, Kothari and Shanken (1997) argues that a considerable increase in share price is possible to result in not only the large dogmatic returns but a descending(prenominal) in yield as well.In addition, according to Akhigbe and Madura (1996), managers expectation to alter performance strategy would be a factor contributed to the dividend adjustment. Consequently, Mulberry needs more time to balance share price and dividend. Burberry has been mature in its orbicular marketing expansion, while Mulberry has just started to occupy its international market share, and therefore there are more potential opportunities for Mulberrys global development. Thus, Mulberry could be the company suitable and profitable to be selected as a long-term investment. 2. 2. 3 Risk caravan Gearing (%) 2011 2010 2009 2008 2007 Mulberry n/a n/a 0. 54 0. 14 23. 05 Burberry n/a n/a n/a n/a n/a ASOS n/a n/a n/a n/a n/a (Table 6) It seems irrelevant that Mulberry does not have debt which results in the incalculable gearing.However, it is a common phenomenon in rag and accessories trade industry in terms of the gearings of the other two companies presented in Table 6 are unavailable. As a result, the risk of investment on Mulberry would be limited. However, considering the high share price this time, it would be a better decision to invest Mulberry for a long time instead of short time. 2. 3 Funding and capital analysis In this part, we are going to identify the sources of funds, analyse the capital bodily structure of Mulberry Group PLC and try to evaluate its suitability.It is easy to witness from its balance sheet in 2011, the company did not have any non-current liabilities. This accompaniment can be triggered by a massive range of reasons, we will try to figure them out in this essay. 2. 3. 1 Funding analysis To begin with, it is necessary to draw on the annual report of Mulberry Group PLC in 2007, and to compare the different selective information in the two years. According to Mulberrys annual report, in 2007, the quantity of total non-current liabilities was ? 3. 99 million, composed by borrowings (? 1. 25 million), druthers shares (? . 564 million), deferred tax liabilities (? 149 super C), and obligations under finance leases (? 27 grounds). Therefore, the gearing in 2007 is 19%, which was instead low. So, the relevantly large proportion of funds, used for maintaining the enterprises operation, was from infixed financial resources. Besides, it also lowered the financial cost, which is used to pay the interest to the financial institutions. In terms of the funds flow in 2007, it was clearly stated in the balance sheet, the cash generated from operation was ? ,926 super acid and, after the corporation taxes, interest and preference dividends were paid, the net cash from operating activities was ? 5700 atomic number 19. Afterwards, the primary use of cash lied in the investing activity, with ? 3,518 gramme. Finally, the cash and cash equivalents at the end of 2007 was ? 10,271 gram, with a big increase of ? 2,989 thousand. This dead intensified the repayment ability and liquidity, when we compare this data with the number of non-current liabilities. by from that, the hold profit in this year surged from ? 4,562 thousand to ? ,186 thousand, acting as a significant role in the sources of funds (annual report 2008). By contrast, in 2011, the company had no non-current liabilities. So we use the current liabilities to calculate the gearing of this year, which is 45%. The cash generated from operation was ? 26,264 thousand and the net cash from operating activities was ? 22,724 thousand. At the end of 2011, the cash and cash equivalents fairly increased from ? 12,171 thousand to ? 21,373 thousand. The increase in raw materials (? 13,318 thousand) and purchases of property, plant and equipment (? 1,176 thousand) were the important components of cash outflow in this year. When it comes to retained earnings, the data increased by ? 16,080 thousand to ? 30,696 thous and. Gearing Non-current liabilities Net increase in cash and cash silver and cash equivalents at the endRetained cyberspace equivalents of the year 2007 19% ? 3,990 thousand ? 2,989 thousand ? 0,271 thousand ? 8,186 thousand 2011 0 0 ? 9,202 thousand ? 21,373 thousand ? 30,696 thousand It is obviously displayed in the table above that Mulberrys sources of funds and the capital structure are greatly unambiguous from each other. The gearing of Mulberry in 2007 was 19% due to the human race of Non-current liabilities. By contrast, since there were no non-current liabilities at all in 2011, the gearing of Mulberry this year was 0.This definitely lowered the financial expenses which were incurred by bank loans, and the company did not need to face the financial risk triggered by bank loans as well. Furthermore, the operating profit in 2007 was ? 6,672 thousand and the interest payable of that year was ? 298 thousand, the interest cover ratio in 2007 was 22. 4 times. By contr ast, due to the dramatic increase in operating profits (? 23,110 thousand) and the large drop in interest payables (? 44 thousand), the interest cover rate in 2011 became as high as 525. times. As Gillespie et al(2000) stated that high operating profits could be seen as the company has abilities to control its costs assembleively, or the volume of sales are increase speedy than operating cost. Currently, Mulberry has got a much better capacity in paying the interests to the financial institutions, those financial institutions may become more uncoerced to lend money to Mulberry now. Although the retained profits in 2007 played an greatly important role as the major intrinsic funds, but taking the non-current liabilities (? ,990 thousand) into consideration, the level of its significance is partly weakened when we compare it with the situation in 2011, because Mulberry currently just use retained profits as the primary source of their funds for operation. It is worthwhile to menti on that, one of the Non- decision birthr Directors, Melissa Ong, who was appointed on 7 September 2010, her parents held about 57% voting rights of the company. Although it is not clarified in the annual report, we can considerably deduct that her parents input a large amount of investment for Mulberry, which is also a main source of funding.Inventories acted as another source of funding in Mulberry. The stock turn of Mulberry in 2011 was 1. 88x, so the stock turn period was 194 days. The period was proportionally long when we compare it with the one (130 days) in 2007, this was partly due to the striking increase in the quantities of inventories, from ? 6,688 thousand to ? 22,408 thousand. However, as mentioned in the annual report, the demand of the market surged in new-made years, so the high level of stock is beneficial for Mulberry. When the company suffers from the shortage of cash, they can simply turn their large amount of stocks in to the form of cash.Apart from that, a relatively large proportion of inventories were occupied by the finished goods with ? 20,069 thousand. For Mulberry, which used internal funds as the major source of funding, the high level of inventories is reasonable. However, the reason why Mulberry s windped acquiring long-term funds from banks can be quite entangled. As we all knew, the whelm Subprime Crisis happened in the year of 2007,forcing a wide range of banks to close down, at the same time the interest for applying for long-term loans from financial institutions rocketed since then. The telegraph 2007) This big trend of the frugal environment might lead to Mulberry Groups forfeit of topic new loans from the bank. Also, there may be some other reasons. It is fairly clear in the table above, the net increase in cash and cash equivalents in 2011 is about 8 times more than 2007, the balance of cash and cash equivalents in 2011 is nearly 3 times more than the previous and the similar situation also happens in the r etained profits and inventories of these two years.Therefore, it seems quite normal for Mulberry to cease the long-term creditors and use its retained profits, inventories and the short-term loans as their source of funds, which can also lower the financial expenses for the enterprise. 2. 3. 2 Working capital In order to figure out the suitability of the current financial structure, it is necessary to calculate the number of the working(a)(a) capital and the working capital cycle. Broadly speaking, working capital is a measure of capability for the company which can pay its debt in the short-term liability.It is certainly important to distinguish between decreed and disallow working capital (Dyson, 2011). The amount of the working capital is fitting to the total amount of receivables, payables, stock of raw materials, work-in-progress and finished goods. As what we mentioned above, we can calculate the working capital of Mulberry in 2011. Receivables ? 12,186 thousand Payables ? 11,949 thousand Stock of raw materials ? 1,684 thousand Work-in-progress ? 655 thousand Finished goods ? 20,069 thousandIn 2011, the total working capital of Mulberry was ? 22,645 thousand. From the composition of the working capital, it is apparent that a comparably large amount was occupied by the form of inventories (? 22,408 thousand). As the manufacturer, causation and the seller of their own products, it is normal for Mulberry to hold such a proportion of working capital in the form of inventories, thereby opposition the needs of customers and quickly reacting against the sudden change of markets demand, like the big increase in seasonal demand.When we compare the amount of working capital (? 22,645 thousand) and the retained profits (? 30,696 thousand), it seems that there are not any problems for Mulberry to cover the working capital with their retained earnings, due to the considerable gap between them. Taking the cash and cash equivalents (? 21,373), this indicates th at the cash in Mulberry was allocated in operating activities appropriately and there was no deadened cash existing in the company, which would lead to an opportunity cost to Mulberry.In terms of the working capital cycle, we need to draw on some other data from the income statement and the cash flow statement. Sales of goods ? 121,645 thousand Cost of sales ? 42,144 thousand Material cost ? 13,318 thousand Bought-in service ? 11,176 thousand So the working capital cycle of Mulberry in 2011 was 85 days. The credit given cycle was 37 days, comparatively a short period when we compare it with the data of credit taken cycle (178 days). This means that Mulberry just spent 37 days getting the cash back for the portion of which was sold to customers on credit.Also, it could guarantee that Mulberry got enough time to enhance the balance of cash, in order to cover the following trade payables and avoid the running out of cash at the mean time. In another aspect, the liquidity of Mulberry w as intensified at the same time as well. However, if we take the companys long-term strategy into consideration, keeping more cash is not the bad thing for Mulberry, as stated in the annual report, they are planning to continually expand the international market and opening more and more retailing and flagship stores passim the world. Expansion at such a fast rate may call for a large amount of cash.So, even though there are no problems at all currently for Mulberry to go for retained profits and short-term creditors as the only source of their funds, issuing some long-term funds, like bank loans, will not arrest any disadvantages, although this may incur some charges on financial expenses. From the long-term perspective, it will be beneficial for the company to get some long-term and stable external funds, thereby avoiding the shortage of cash and funds during the march of expansion. 2. 4 Risk management and governance 2. 4. 1 Corporate governance of MulberryAt the beginning of the corporate governance part, the company states itself as an receive (Alternative enthronisation Market) member and complying with the Corporate establishment codification is not required (Mulberry, 2011). AIM is a second board enables smallercompaniestofloatshares with more elastic stipulations (Tricker, 2009). Still, Mulberry follows the fundamental principles of the principle (Mulberry, 2011), and importantly, they fit the code contents with their individual situations. Based on this state, our analysis still follows the UK Corporate Governance Code primarily and sights any issues contrary to the code.Besides, comments and debates are connected with the companys own factors. In the board of Mulberry, the chairman and CEO is the same person. This person, named Godfrey Davis, has been in charge of this company for nearly ten years from November 2002. This setting goes against the UK unite Code which states, The role of chairman and chief executive director should not be e xercised by the same individual (the UK Corporate Governance Code, 201013). In this case, we doubtfulness that if Godfreys power is over-concentrated, which makes him have too strong influence on decision making make in the board (Goyal and Park, 2002).Consequently, strategies may be generated inseparablely. However, a particular(prenominal) explanation is not given in the report. Instead, they only point out several criteria of director selection should be conservatively assessed, as a way of reduce the possibility of the problems addressed above. But actually, this state explains nothing about the problem, which conversely doubles our doubts. Next, the numbers of Executive Directors and Non-executive Directors are unbalanced, with five Non-executive Directors and only two Executive Directors.The five Non-executive Directors are not entitled to govern company routine affairs and the specific running plans while these two Executive Directors actually do (Mallin, 2004). therefr om it is doubtful that if these two people really execute independently or just execute generally. Moreover, combining the fact of Godfrey Daviss acting as both chairman and CEO, it especially intensifies our thought on the existence of subjective decision making process (Mallin, 2004), or even the over-centralized management in the company.On the other hand, these outside directors, instead of actually contributing to the companys strategy and policy making relating to its performance, they are actually pushed into a abidance and compliance mode (Tricker, 2009) and do not take much positive effect. Conversely, McKinsey (2002) debates that a sensible structure is combined with a majority of Non-executive directors because they are indeed independent and can result in an effective evaluation. On the other hand, it is found in the profile of directors that, both the executives have the FCA background.Obviously, it enables them to detect and control the financial risk better, by using their financial companionship (Dionne and Triki, 2005). Conversely, we may also suspect they are fully capable to use professional financial tricks to disguise the poorer performance areas, and at the same time, make their stewardship looks proper. On the other side, according to the UK corporate governance code (2010), scrutinise committal is required to monitor the financial performance and check the companys risk assessment.Chris Robert, the chairman of the Audit direction, as another financially educated director, suits the requirement of responsibilities stated in the code. Considering the independence of Non-executives, several problems which may raise suspicions are found referring to the code. Firstly, all the Non-executives except Melissa Ong, have been appointed for more than 6 years. Especially Robin Gibson, this person has been in this position for more than 14 years since 1996. These facts raise some questions about the independence of the board and no explanations are given by Mulberry.Additionally, both Steven Grapstein and Bernard Lam Kong Heng are presently serving in Como Holding Group, though in different subsidiary company. This relationship particularly could pose a negative impact on the independent base (Mallin, 2004). Thirdly, Melissa Ong, who is quite young at 37, was newly appointed in 2010. This lady does not directly hold any shares for Mulberry, however, her parents are beneficially interested approximately 57% of the Companys total voting rights (Mulberry, 201014). In other words, Melissa though not own the huge amount of share, shes actually represent a significant shareholder indirectly.In contrast, according to the code (UK corporate governance code, 2010), some aspects are shown to enhance independence of the Non-executives. For example, no bonus was paid for these Non-executives during the year and none of them was included in the companys pension contributions (Mulberry, 2011). The companys internal watchdogs, three reco mmended sub-committees (Audit, wage and Nomination) (Pierce, individual(prenominal) Communication, 2011) are established by Mulberry, with a combination of requital and Nomination body.Additionally, both committees are chaired by Non-executives and effects of the committees are related to the independence of these Non-executives (Mallin, 2004) which has been discussed above. Moreover, the responsibility appointing is reasonably complying with the code (2010). In specific, the Audit Committee is entitled to check issues regarding to the companys financial affairs, while Nominations and net profit is accountable for employment terms and conditions and the remuneration (Mulberry, 2011).However, the numbers and identities of other committee members are not mentioned in the report, which interfere our assessment of Mulberry sub-committee structure and quality. 2. 4. 1 Risk & control management In this part, COSO Internal delay Integrated Framework (COSO, 1994) is sited as the prin cipal structure to consider Mulberrys risk control and management. Control Environment A dinner gown system is required make sure the risks are appropriately evaluated and controlled in board level (Tricker, 2009). It is manifested in the report that the maturate is fully responsible for Mulberrys internal risk (Mulberry, 2011).Specifically, Directors pay great attentions to the control throughout the comprehensive aspects of the companys business running and make it available in practice. These states, though quite bare(a) with only a few(prenominal) sentences, clarify the Boards serious-minded attitude to risk control. Additionally, increasing literature viewpoints in recent years call for a ball system to ensure that risk is properly assessed board to give assurances that systems are in place to handle corporate risk in their unceasing corporate governance reports to shareholders (Tricker, 2009328).For Mulberry, the control system was established and the report deterrent example well fit the requested as mentioned. Specifically, the control system mainly consists of subsystems including budgeting, actual running results comparison, forecast and review (Mulberry, 2011). Also, the information is reported to shareholders twice a year (Mulberry, 2011). Risk assessment and control activity First of all, as a result of continuous recession in the UK prudence which leads to sales reduce in domestic market, Mulberry considers relieving from the decrease risk by international expansion (Mulberry, 2011).It is reasonable that they concern about the negative impact of recession in the UK (OECD, 2010). However, it seems lack considered by their merely reverse to international market because the international market is much more complex with various risks involved (Hollensen, 2006), for example, local regulation limitations, economic environment in foreign market, competitors, customer preference diversity and so on (Kotler, 1994). Also, nonstarter of the glo bal risk transfer may occur that leads to even serious financial crisis for Mulberry. Secondly, terrorist attack, as regarded a principle risk by Mulberry, is related to warehouse gap.The company tries to prevent it by developing a business continuity plan (Mulberry, 2010). However, it is illogical to take terrorist attack as a major risk, which is a rarely happened incident. Moreover, there is no any move on explanation about the so called business continuity plan solution. Conversely, an amend warehouse control and management system accompanying an emergency political program may be a better approach to prevent the risk. Besides, the risk may be more sensible to be associated with stock disruption or supply chain failure (Aon, 2007) rather than terrorist attack as is stated.On the other hand, key personnel passing is mentioned in the report with simple solutions of remuneration review and succession preparation. However, either the reasons or the details are not revealed. So i t is uncertain that if the methods are valid or not. For example, if the loss was caused by unreasonable decision making caused by the arbitrary executive as we mentioned above, then either these ways can hardly make the problem. As to the online system establishment and accomplishment, Mulberry involves more senior managers for lapse and impose carefully test to reduce the risk of system run through failure which is quite reasonable.With increased attention paid by senior managers, staffs in relative department will do the task more carefully. Also, comprehensive test further guarantees the system implemented successfully. Finally, it is mentioned in the report that the company intends to solve the risk by building a lifelike hedge of Euro and US Dollar denominated sales and purchases (Mulberry, 201112). This sector involves professional familiarity about the currency policies and financial operating. Unfortunately, we are lack of knowledge in this area. Hence we would not ana lyse this issue in depth. . 4. 3 education and Communication The company includes an information and reporting subsystem in the integrated internal control procedure (Mulberry, 2011), which obviously, is used for collecting and conveying relative information. Furthermore, since the internal control is taken charge by the Board at the top of the companys management layer, it is essential to ensure the effectiveness of information collecting and communication in time according to COSO framework (1994). However, relative details are not mentioned for the assessment and herefore, the facts for the effectiveness are unsure. 2. 4. 4 Monitoring According to COSO Framework (1994), there are two approached for monitoring, one is undertaking it along with the ongoing activities, the other is put it into a founder process. Mulberry adopts the later approach by putting the monitoring process separately. However, a combination of both approaches is recommended in COSO framework (1994), in orde r to ensure the effect of internal control. In other words, it can be more sensible for Mulberry to develop monitoring affairs in the whole business running procedure.Moreover, the internal audit is functioned by the Board (Mulberry, 2011), for which the details are not given in the report. For example, factors like how the deficiencies been find and conveyed upstream to the Board are not revealed. Thus the monitoring effect of Mulberry internal control can not be evaluated comprehensively through the report itself. 3. Conclusion From the information above, we can see Mulberry made efforts for market place on the Uk market during the year of 2010 to 2011 and managed each aspect of overseas development.In 2010, Mulberry has become aggressive in invest oversea markets and online stores. As a result, the income of Mulberry has created its new page for share price. However, as other companies, Mulberry has its flaws and drawbacks. Firstly, there is no debt existed in Mulberry therefore , the investment could be limited. The main funding of Mulberry is internal funding. Mulberry has experienced extraordinary successful times since 2009, which contributed to the significant increase in share price. However, the higher share price can be a double-edge sword which might attract many investors as well as scare them.After analyzing the probability of return and the extent of risk, Mulberry is a company worth investing. Nevertheless, it is necessary to mention that it would be much better to choose a long-term investment than a short one. And Mulberry has a series of solutions to solve the risks that existing in its operating process and markets. Reference Anderson, R. 2004. Risk Management and Corporate Governance The Importance of Independence and fiscal Knowledge for the Board and the Audit Committee Anonymous. 2007. 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