Managerial Accounting Ted Baker

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  • A quarter of Ted Baker's sales came from overseas, up from 20 percent a year ago, Page said. Online sales jumped 82 percent and made for roughly 5 percent of total sales. - http://uk.reuters.com/article/2012/10/04/uk-tedbaker-results-idUKBRE8930EE20121004
    "The irony is that Ted Baker has done nothing remarkable," McGregor stated. "Instead, it's enthusiastic, creative and 100% Tedicated to its core customers and this is serving it well. - http://www.iii.co.uk/articles/82155/next-cautious-ted-baker-flourishes
  • Source: Fame Database and Ted Baker Website (http://www.tedbakerplc.com/ted/en/aboutus/strategy)
  • Source:
    *http://www.made-by.org/tedbaker
    **http://www.tedbakerplc.com/ted/en/responsibilities/environment
  • Source: Ted Baker Annual Reports
  • Source: Ted Baker, Burberry and All Saints Annual Reports
  • Source: The du Pont ‘pyramid’ of ratios
  • BS Advantages
    Strategies are made increasingly visible
    A balanced picture throughout the business is provided
    Incorporates qualitative and quantitative data
    Clarifies the Vision and Strategies by attributing data to them
    BS Disadvantages
    High implementation costs through training, time to create, strategy formulation etc
    The four areas do not provide a complete picture
    DP Advantages
    Prioritised view of performance objectives
    Can be adapted for different SBUs
    Can incorporate non-financial data
    Identifies relationships between ratios
    DP Disadvantages
    Can be difficult to see how performance can affect certain ratios
    Limited to only the ratios than can be derived from ROCE (a focus for Ted Baker analysis)
    Cannot include Current/Gearing Ratios (a focus for Ted Baker analysis)
  • Source:
    The Balanced Scorecard – Measures That Define Performance (1992), Kaplan, R; Norton, D; Harvard Business Review, http://www.stevens-tech.edu/MSISCourses/450/Articles/ValueOfIT/TheBalancedScoreCard.pdf
    The balance on the balanced scorecard- a critical analysis of some of its assumptions, (2000), Norreklit, H, Management Accounting Research, http://www.sciencedirect.com/science/article/pii/S104450059990121X#
  • Source: Yahoo Finance
  • Managerial Accounting Ted Baker

    1. 1. Presenters Chris Wilson (8611950) Henry Wilson (5870563) Stephen Baines (8606323) Aqib Malik (8742440)
    2. 2. 2 OVERVIEW Strategy/Overview •Strategic Objectives •Strategic PESTEL Analysis •Strategic SWOT Analysis Financial •Key Financial Data •Benchmark Management Accounting •Challenge Focus •Solution Identification •Solution Analysis •Solution Literature Review Recommended Tool •Tool Recommendation •Tool Impact on Issues
    3. 3. STRATEGY/OVERVIEW
    4. 4. 4 STRATEGIC OBJECTIVES 1. Considered expansion of our collections “Our aim is to become a world leading designer lifestyle brand” Our strategy to achieve this is based on three main areas of focus 2. Controlled distribution through three main channels: retail; wholesale; and licensing 3. Carefully managed development of existing and new international markets
    5. 5. 5 STRATEGIC SWOT ANALYSIS Strengths •Strong brand name •Niche market in high-end fashion •Geographical diversity Weakness •Escalating debt •Cash flow cycle •Distribution competency Opportunities •Global expansion plans •New market exploitation •Online sales in developing markets •Traditional Marketing •Fast changing fashion trends Threats •Strong competition both locally and internationally •Change in labour/wage law
    6. 6. 6 STRATEGIC PESTEL ANALYSIS Political •Political environment is quite stable in the regions company operates ( Aim 3 ) •No apparent affect on religion ( Aim 3 ) Economical •Economic uncertainty (Aim 2) •Reward package to keep the talented within the company (All 3 aims) Social •Demand for recyclable clothes (Aim 1) •Social media marketing (All 3 aims) •Change in fashion trends (Aim 1 & 3) Technological •Strong growth in online activities (Aim 2 & 3) •Upgrading of security equipment to safe guard the increased online customer base (Aim 2 & 3) •Online and social media marketing (All 3) Legislative •Corporate tax rate reduction in UK ( Aim 3 ) •Change in labour/wage laws ( Aim 3 ) Environmental •*All underwear, pants & socks made with organic cotton ( Aim 3 ) •*2% of the collection is currently made of sustainable materials.  ( Aim 3 ) •**Green 500 member (Aim 2 & 3)
    7. 7. FINANCIAL
    8. 8. 8 KEY FINANCIAL DATA Revenue by channel( £m) 2008 2009 2010 2011 2012 2013 Retail 103 118 137 146 165 193 Wholesale 39 34 27 35 41 47 E-commerce 6 9 15 License income 5 6 6 6 7 8 Total revenue 148 158 169 194 222 262 Gross profit 83 89 99 116 132 159 Gross margin by channel Retail 65 63 65 66 65 66 Wholesale 40 43 42 45 45 45 Composite 58 59 61 62 61 62
    9. 9. 9 BENCHMARK Ted Baker Burberry All Saints 2012 2011 2012 2011 2012 2011 Return on Capital Employed (%) 28.01 31.23 36.1 35.62 -83.99 -0.12 Profit margin (%) 11.25 12.91 19.71 19.7 -31.2 -0.04 Gross margin (%) 61.31 61.68 69.94 67.26 53.44 62.6 Gearing (%) 9.64 2.03 40.94 39.92   471.35 Fixed Assets Turnover (x) 5.23 5.7 3.17 3.04 3.7 2.78 Current ratio (x) 2.78 2.87 1.72 1.63 1.47 1.02 P/E ratio 15.30 16.00 24.78 24.51    
    10. 10. MANAGEMENT ACCOUNTING
    11. 11. 11 THE CHALLENGE Collection Expansion •Expand collections inline with business objectives •Define fashion trends, rather than keep up with them •Identify opportunities before the competition Controlling Distribution Channel •Deliver margin led growth Existing and New Market Developments •Identify high potential markets early •Expand into new territories Control Distribution Channels New/Existing Market Developments Expand Collections
    12. 12. 12 SOLUTION IDENTIFICATION Management Accounting Tools under Analysis: •Balanced Scorecard •DuPont Hierarchy/Pyramid of Ratios Balanced Scorecard Overview •Displays multiple measures of performance •Focuses on Customer, Learning and Growth, Internal Business Process and Internal Operations •Critical measures applied to each area DuPont Hierarchy/Pyramid of Ratios Overview •A Framework to understand ratios •Ratios are ordered by priority/importance •Enables regular performance measurement
    13. 13. 13 SOLUTION ANALYSIS Balanced Scorecard Advantages •Makes strategy operational •Provides a balanced performance picture •Combines quantitative and qualitative measures •Assists in clarifying vision/strategies Disadvantages •Potential high implementation cost •Requirement of clearly defined objectives •Four areas do not provide a whole picture DuPont Hierarchy/Pyramid of Ratios Advantages •Provides a prioritised view of performance •Can also be adapted for specific SBUs •Non-financial data can be introduced •Identification of ratio relationships Disadvantages •Sometimes difficult to see how performance can affect high-end ratios •Limited to only those ratios that can be originally derived from ROCE •Cannot include important indicators of risk (Current/Gearing Ratios)
    14. 14. 14 Gaps exist between the strategy expressed in the actions and the planned strategy SOLUTION LITERATURE REVIEW “Unfortunately, benchmarking is one of those initially good ideas that has turned into a fad. About 95% of those companies that have tried benchmarking have spent a lot of money and have got very little return” (Kaplan et al, 1992) “Balanced Scorecard aims to contribute to reducing the problems involved in using only financial measures for the purposes of control” (Norreklit, 2000) Other methods (e.g. Du Pont Pyramids) generally focus on financial measures "There is not a causal but rather a logical relationship among the areas analyzed” (Norreklit, 2000) Intangible elements tend to be logical rather causal “The balanced scorecard is not a valid strategic management tool, mainly because it does not ensure any organizational rooting, but also because it has problems ensuring environmental rooting” (Norreklit, 2000) “The Balanced Scorecard puts Strategy – not Control – at the center” (Kaplan et al, 1992) Alignment to strategy achieving results and key metrics The Balanced Scorecard could not be implemented without the involvement of senior management (Kaplan et al, 1992) Essential that management buy-in is obtained to resolve limited visibility Benchmarking isn’t critical to Balanced Scorecard however does enable a basis for comparison
    15. 15. RECOMMENDED TOOL
    16. 16. TOOL RECOMMENDATION Customer Objective Measure Stakeholder Expectations P/E ratio After sales marketing CRM tracking Customer Re-visit CRM tracking Customer satisfaction with product quality, design and attention to detail Customer insight report (also Learning and Growth) Preemptive marketing Growth in emerging markets Learning and Growth Objective Measure Establish JV with strategic partners in emerging markets Number per emerging market Core competencies: Passion Commitment Dedication of our teams Internal customer survey Understanding economics of distribution Distribution cost as % of sales (net reduction) Target and understand key drivers for growth Increased growth Trend set rather than trend follow Environmental analysis Financial Objective Measure Increase license income % of revenue New customers through online sales CRM tracking Growth in emerging markets Market share growth vs. total market growth ROI Net current assets turnover Establish Ted Bakers Giffen goods status % of revenue and profit Carefully manage development Gearing ratio Internal process Objective Measure Product to market Concept to store time Enhance customer experience Mystery shopper Re-aligned stock process Units in inventory Efficient distribution channels Distribution cost as % of sales (net reduction) Define market exit strategies for ineffective markets Economic analysis/trends Strategy: 1. Considered expansion of our collections 2. Controlled distribution through three main channels: retail; wholesale; and licensing 3. Carefully managed development of existing and new international markets
    17. 17. Balanced Scorecard recommendations: •Supplement Balanced Scorecard with Activity-Based Costing Benefit: Identifies products/customer types which are the most profitable and costs, cost drivers and customer value based on channels Output: Enhances the understanding for process or input factor reorganization which will change the earnings and cost structure of the firm •Link Balance Scorecard actions with available input factors (SMART) Benefit: Identifies that there is a means to the intended end Output: Reduces uncertainty and enables results to be safeguarded and predictable whilst ensuring coherence •Ensure strategic dialogue occurs throughout the business Benefit: Identifies communication channels and ensures communication occurs through those channels Output: Bridges differences between perception and understanding ensuring consistent goals increasing strategic awareness throughout the business •Identify if Ted Baker is a Giffen Brand or has Giffen goods through the different markets and channels Benefit: To drive sales at the same time as increasing profits Output: Increased sales whilst also being able to potentially raise selling prices in various markets TOOL RECOMMENDATION
    18. 18. 18 IMPACT ON FINANCIAL ANALYSIS The following drivers will be improved: •Return on Capital Employed (%) •Profit margin (%) •Gross margin (%) •Gearing (%) •Fixed Assets Turnover (x) •Current ratio (x) •P/E ratio 1. Considered expansion of our collections “Our aim is to become a world leading designer lifestyle brand” 2. Controlled distribution through three main channels: retail; wholesale; and licensing 3. Carefully managed development of existing and new international markets
    19. 19. 19 Questions?

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