Finance Essay Example | Topics and Well Written Essays - 2000 words - 1

Finance - Essay Example In addition to positioning its luxury brands, it has also targeted international diversity, which resulted in the company’s achievement of constant growth without any barrier. Company maintains a good relationship with its stakeholders as well as employees by establishing important policies and procedures for their development. It is LVMH’s responsibility to ensure that labor standards and company’s supplier code of conduct are respected by the suppliers. Whenever improvements are required, supplier audits are conducted and corrective actions are taken. The company has advantage in supply chain that entails lower risk, which is a result of good vertical integration. Through a well-strategized system of advertising, it has remained to maintain its lead in fashion. The company strongly believes in maintaining quality and creating brand image through innovation. II Company Strengths and Weaknesses: 1. LVMH’s financial performance from 2009 to 2011: Return on Common Equity Ratio: This ratio measures the achievement of an organization in generating profit for the advantage of common stockholders. It is calculated by dividing the net income obtainable for common stockholders by their common equity. It is calculated as follows: â€Å"Return on Common equity = (net profit - preferred share dividends) / (shareholders equity- preferred shares)† (Return on Common Equity Ratio n.d.). Solution: Year 2009 2010 2011 Net income 1,755 3,032 3,065 Note: Data’s taken from the 2009 to 2011 financial statement of LVMH. Net Income available for common stockholders: 1,755-21=1734 (2009) 3,032-20=3012 (2010) 3,065-61=3004 (2011) Average Common Stockholders’ Equity: 2009= (100) + 1,186/2 =543 2010= 1,186+ 1,679/2 = 1432.5 2011= 1,679+33/2 = 856 Therefore, Return on Common equity = 1734/543*100=319.34% (2009) 3012/1432.5*100=210.26 % (2010) 3004/856*100=350.93 % (2011) Dividend Payout Ratio: This is the amount of dividends paid to stockho lders in relation to the amount of total net profit of an organization. The amount that is left after paying dividends to stockholders is kept aside by the firm for development. This amount that is reserved by the firm is called retained earnings. It is calculated as follows: â€Å"Dividend Payout Ratio = Dividend per Share / Earnings per Share (EPS) x 100%† (Dividend Payout Ratio n.d.). Solution: 1.65/ 3.71*100 =44.5% (2009) 2.10/ 6.36*100 = 33% (2010) 2.60/ 6.27*100=41.47% (2011) Ratio 2009 2010 2011 Return on Common Equity 319.34% 210.26% 350.93% Dividend Payout Ratio 44.5% 33% 41.47% Note: Data’s taken from the 2009 to 2011 financial statement of LVMH. Interpretation: Return on equity shows the company’s profitability in terms of how much the company has earned from the investment made by common stock owners. It is a measurement of efficiency more than a measurement of profit. In 2011, return on equity for LVMH was 350.93%, which is a higher percentage than it was in the year 2009 and 2010, as shown in the table. Payout ratio here is 41.47% which is below 100% and it means that the business has grown rapidly and that it has a lot of opportunities for expansion, thus the reason for payout ratio to be low. Both