The Swatch Group is a multinational luxury watch company formed in 1983 through the merging of Swiss watchmakers. It owns several famous watch brands such as Omega, Tissot, and Swatch. Recently, Omega introduced an anti-magnetic watch movement resistant to over 15,000 gauss. Harry Winston, also owned by Swatch Group, purchased the largest blue diamond for $23.8 million. An analysis of Swatch Group's financial ratios from 2012-2013 found increasing profitability but worsening financial stability, with higher debt levels and slower inventory turnover. Based on this, the document recommends not investing in the company due to instability risks.

1. Foundation in Natural & Built Environment
April Intake 2014
Basic to Accounting
ACC30205
Assignment: Financial Ratio Analysis
Andrew Mah Koon Yan 0318798
Lu Siau Vay 0318567
Chong Hui Xin 0319363

2. The Swatch Group Limited
The Swatch Group Limited is a multinational holding group of companies that makes
luxurious watches. Originating from Switzerland, this international group was formed in
1983 by the late Nicolas George Hayek (1928-2010) through the merging of Swiss
watchmakers, Allgemeine Schweizerische Uhrenindustrie AG (ASUAG) and Société Suisse
pour l'Industrie Horlogère (SSIH) due to financial reasons. It was known as Swiss
Corporation for Microelectronics and Watchmaking Industries Ltd (SMH) before being
renamed to the current name, The Swatch Group in 1998.
With the children of the late Nicolas George Hayek as the current chairwoman of The Swatch
Group, Nayla Hayek, and the current CEO of The Swatch Group, Nick Hayek, The Swatch
Group continues to conduct research and development of watches while expanding the watch
manufacturing business worldwide with a few famous brands under them such as Tissot,
Omega, Swatch, and Calvin Klein watches.
One of its recent achievements, Omega, a Swiss luxury watch manufacturer owned by The
Swatch Group, introduced a mechanical watch movement resistant to magnetic fields greater
than 15,000 gauss with a soft iron shield to protect the watch movements. This is a ground-
breaking anti-magnetic technology produced by a company under The Swatch Group.
Another known famous story is that Harry Winston, a company also owned by The Swatch
Group, purchased the largest known flawless vivid blue diamond in the world for $23.8
million.

3. (CHF million)
Profitability Ratios Formulae 2012 2013 Interpretation
18.40% 21.20%
(1604/7796)
*100% =
(1928/8456)
* 100% =
(4157/7796)
* 100% =
(4656/8456)
* 100% =
(1097/7796)
* 100% =
(1261/8456)
* 100% =
(604/7796)
* 100% =
(703/8456)
* 100% =
(31/7796)
* 100% =
(36/8456)
* 100% =
Return on Equity
Net Profit Margin
Gross Profit Margin
Selling Expense Ratio
(1928/9073.5)
* 100% =
During the 2012 to 2013 period, the net profit margin increased from
20.6% to 22.8%. This mean the business is getting better at controlling its
expenses.
During the 2012 to 2013 period, the gross profit margin increased from
53.3% to 55%. This mean the business is getting better at controlling its
COGS expenses.
(New Profit /
Average Owner's
Equity) * 100%
53.30% 55%
7.70% 8.30%
Financial Profitability Ratio Analysis and Interpretations of
The Swatch Group Limited
20.60% 22.80%
(New Profit / Net
Sales) * 100%
( Gross Profit /
Net Sales) *
100%
(Total Selling
Expense / Net
Sales) * 100% 14% 14.90%
(Total General
Expense / Net
Sales) * 100%
During the 2012 to 2013 period, the selling expense ratio increased from
14% to 14.9%. This mean the business is getting better at controlling its
selling expenses.
During the 2012 to 2013 period, the general expense ratio increased from
7.7% to 8.3%. This mean the business is getting better at controlling its
general expenses.
General Expense Ratio
During the 2012 to 2013 period, the return on equity increased from
18.4% to 21.2%. This mean the return to the owner is getting more return
from his capital.
(1604/8707.5)
* 100% =
During the 2012 to 2013 period, the financial expense ratio increased
from 0.3% to 0.4%. This mean the business is getting better at controlling
its financial expenses.
Financial Expense Ratio
(Total Financial
Expense / Net
Sales) * 100% 0.30% 0.40%

4. (CHF million)
Stability Ratios Formulae 2012 2013 Interpretation
6.5:1 6.5:1
(1878/11222)*100% = (2065/11639)*100% =
365/(2356/4039) = 365/(2456/4916.5) =
365/(4228/1066.5) = 365/(3898/977) =
(3+1604)/3 = (4+1928)/4 =
537 times 483 times
Financial Stability Ratio Analysis and Interpretations of
The Swatch Group Limited
16.70% 17.70%
(Total Liabilities /
Total Assets) *
100%
365 days / (Cost of
Goods Sold /
Average Inventory)
365 days / (Credit
Sales / Average
Debtors) 92 days 91.5 days
(Interest Expense +
Net Profit) /
Interest Expense
During the 2012 to 2013 period, the business' debtor turnover ratio has
decreased from 92 days to 91.5 days. This means that the business is
getting faster at collecting its debts.
During the 2012 to 2013 period, the business' interest coverage ratio has
decreased from 537 times to 483 times. This means that the business's
ability to pay its interest has become worse. In addition, the business
satisfies the minimom requirement of 5 times.
Interest Coverage
During the 2012 to 2013 period, the business' working capital ratio has
no change which is 6.5 : 1. This means that the business' ability to pay its
current liabilities remained the same. In addition, the business satisfies
the minimum requirement of 2 : 1.
7827/1204 =
During the 2012 to 2013 period, the business' total debt ratio has
increased from 16.7% to 17.7%. This means that the business's total debt
has increased. On the contrary, the business does not exceeds the
maximum limit of 50%.
During the 2012 to 2013 period, the business' stock turnover ratio has
increased from 629.3 days to 730 days. This means that the business is
getting slower at selling their goods.
Total Current
Assets / Total
Current Liability
629.3 days 730 days
Working Capital
Total Debt
Stock Turnover
Debtor Turnover
8673/1338 =

5. Appendix 1 :
Price Earnings Ratio of The Swatch Group
As of 08:23:09 ET on the 14th of January 2015
= Current share price / Earnings per share
= 459.400 CHF / 33.3800 CHF
= 13.8376
The Swatch Group has a current share price of 459.400 CHF per share. It’s earnings per share
(based on the group’s trailing 12 months) is 33.3800 CHF. The group’s price/earnings ratio is
13.8376
Appendix 2 :
Investment Recommendation
After a long discussion with my group, we decided that it is NOT worth investment into this
company.
There are a few factors behind this decision. One of it would be the instability of the
company based on the ratio analysis of the company for the past 2 years.
Even though the numbers on profitability ratio analysis calculation says that the company is
getting better at generating earnings and controlling its operating expenses. But this doesn’t
mean that the company will last through the next year or the next decade of business. This is
shown at the financial stability ratios calculated based on the 2 years.
It is clearly shown that the company’s debt has increased by 1% from 2012 to 2013. That 1%
of increased is a loss of profit for the company, and doesn’t attract investors when the
company is in debt.

6. According to the stock turnover ratio calculated, the company has increased 100 days slower
in selling their goods. This is bad news for investors as they want the company to prosper in
sales so that the money they invested in will not go to a waste or a loss.
In addition, the interest coverage ratio of the company has decreased to about 50 times. A
lower interest coverage ratio means less earnings are available to meet interest payments and
that shows the business is getting worse at paying its interest back.
Another factor is the price of a share and its earnings per share. The amount of money for a
share when the earnings obtained is not that high all in all. The P/E ratio is 13 close to 14.
In conclusion, the performance data quoted represents past performances and does not
guarantee future results. Even though the P/E ratio is below 15, it doesn’t mean that it is wise
to invest in this company that has a risk of failure or bankruptcy.

20. Reference
1. Omega and the Swiss Federal Institute of Metrology (METAS). (2014, December 9).
Retrieved January 15, 2015, from
http://www.swatchgroup.com/en/services/archive/2014/omega_and_the_swiss_federa
l_institute_of_metrology_metas
2. Swatch Group History (yesterday). (2005, October 21). Retrieved January 15, 2015,
from http://www.swatchgroup.com/en/group_profile/history/yesterday
3. Swatch Group History (today). (2005, October 23). Retrieved January 15, 2015, from
http://www.swatchgroup.com/en/group_profile/history/today
4. UHR:SIX Swiss Ex Stock Quote. (n.d.). Retrieved January 14, 2015, from
http://www.bloomberg.com/quote/UHR:VX