Business Planning and Development Essay Example | Topics and Well Written Essays - 1750 words

Business Planning and Development - Essay ExampleThe beau monde mainly operates in Asia, Europe and North America with its headquarters in New York. Research and compend has shown that PVH truely has mellow direct of debt and interest payments which is reflected in its amply debt-to-equity ratio (showing that the company is highly geared). Furthermore, the company has a relatively small, concentrated customer base, intense competition which could lead to volatility in wampum and an underfunded pension plan. Therefore, it is increasingly important for PVH to secure its market ready and reduce its dependence on debt kinda than increasing it. Discussion Liquidity It is important to analyze the monetary liquidity of PVH in order to turn back its ability to defer on more debt. The current ratio of a company reflects its ability to out on brusk term debts or debts within a period of 12 months (Baker & Powell, 2005). Usually a current ratio of PVHs current ratio is 2.39 (NAS DAQ, 2013) which reflects that for e actually $2.39 of current assets, the company has $1 of current liabilities. Normally, companies having a current ratio over 1 are considered to have strong liquidity position or ability to pay off short term debts (Weil et al., 2012). This is visible in the case of PVH. Although the short term liquidity of PVH seems to be high (as indicated in the research), its long term liquidity remains very weak. Furthermore, the high current ratio may not be a good indication as a review of PVHs Balance Sheet shows that majority of its current assets (almost a third of the dollar sign value) are tied up in inventory which indicates a major problem. This is because inventory may take time to convert to cash and may, therefore, negatively affect the companys ability to pay off its short term liabilities (Ross et al., 2012). Therefore, the high liquidity indicated by the high current ratio may, in effect, be insignificant because of too much inventory being h eld. Furthermore, PVHs cash combine statement indicates a positive operating cash flow of 453m which, in itself (Yahoo Finance, 2013), indicates a high level of cash availableness and liquidity. However, the relevant figure in this case is not operating cash flow but levered set free cash flow as the latter takes interest on debt into account. In short, levered free cash flow indicates a cash position of a firm after it pays off the interest on its debt (Penman, 2009) . This is a negative value (-45m) for PVH (Yahoo Finance, 2013) which indicates high interest payments and suggests that the cash generated may not be sufficient to visit continuity of the business in future. Debt position PVHs financial position indicates an already high level of long term debt as a percentage of its sum total liabilities (roughly 58%). Furthermore, it is important to understand the financial leverage of PVH in order to further determine its ability take on the additional ?20 million. This is expl ained by the total debt to equity ratio which describes the relative proportion of debt and equity that the firm uses for financing its assets (Heitger et al., 2008). A higher ratio typically suggests an aggressive growth strategy with the effect of increased earnings, albeit often with high interest charges. Normally, a debt-to-equity ratio over 20% is not considered a healthy sign (NASDAQ, 2013). The total debt to equity ratio of PVH is very high (108.65) which suggests that the company is highly geared (NASDAQ, 2013). This already high debt indicates the high interest cha