Title

Financial ratios of Levi’s and GAP.

Project by:

Muhammad Saad Ullah.

(L1S20BSAF0012).

Institution:

Faculty of Management Studies,

University of central Punjab. (UCP).

Performance Management.

Prof. Ghulam Mustafa.

 Financial ratios for the year 2020.

Levi’s Gap
LIQUIDITY RATIOS
Quick Ratio  1.19 1.24
Current Ratio  1.74 1.81
GEARING RATIOS
LT Debt to Equity  89.75% 79.04%
Total Debt to Equity  146.42% 79.04%

TURNOVER RATIOS
Asset Turnover  0.75 1.19
Inventory Turnover  2.34 4.19
Revenue/Employee  287.30K 134.05K
Net Income/Employee  -9.28K 2.66K
Receivable Turnover  6.49 N/A

PROFITABILITY RATIOS
Gross margin  53.47% 38.68%
Gross Margin 5YA 52.85% 36.94%
Operating margin  -2.39% 3.6%
Operating margin 5YA 7.53% 4.72%
Pre-tax margin -4.7% 2.19%
Pre-tax margin 5YA 6.11% 4.22%
Net Profit margin  -3.23% 1.98%
Net Profit margin 5YA 5% 2.8%
Return on Equity  -9.15% 12.14%
Return on Equity  26.25% 14.12%
Return on Assets  -2.42% 2.36%
Return on Assets  6.86% 4.56%
Return on Investment  -3.55% 3.23%
Return on Investment  9.49% 6.35%
MARKET RATIOS
Dividend Yield  1.41 1.37
Dividend Yield 5 Year Avg.  3.51 1.43
Dividend Growth Rate  -5.98 4.62
Payout Ratio  26.99 17.32
Price to earning ratio 23.25 32.34

Liquidity ratios
Short term solvency is divided into two categories: current ratio and quick ratio. These ratios
help the companies determine their financial health. The current ratio can be quickly defined
by taking the firm’s assets and dividing them by their liabilities. Levi’s current ratio is 1.74
and of Gap is 1.81 a little larger. The quick ratio works almost the same except that in
addition, from this ratio we conclude that Gap has larger sales than Levi’s.

Gearing/Leverage Ratios
Long ¬term solvency refers to the long¬ term benefits of a company. Firms invest their
markets in hope to gain high return rates and therefore increase the value of stock and
profitability. After determining the ratios, it is clear to define which company has more
potential to gain leadership within its market. The total debt ratio explains how much total
liabilities against total assets a company has. Gap is more likely to pay-off its debt as its
percentage is 79.04% as compared to Levi’s which is 89.75%.

Turnover ratios
To determine the turnover ratios within a company, a few things must be clear: the inventory
turnover, days’ sales in inventory, the receivable turnover, days’ sales in receivable, the
NWC turnover, the fixed asset turnover, and the total asset turnover. The inventory turnover
simply measures sales against inventory. A low asset turnover ratio, it indicates a company is
not efficiently using its assets to generate sales. As asset turnover of Levi’s is less 0.75 than
that of Gap which is 1.19 means that Levi’s is not efficiently using its assets, while the asset
turnover of Gap is good than Levi’s and is generating sales. Inventory turnover of Levi’s is
2.34 and that of Gap is 4.19 means Gap is selling its products quickly and has a great demand
while on the other hand, the sales of Levi’s is not as quickly as Gap and the demand of its
product is less than Gap.

Profitability Ratios
Profitability ratios are the best way to see how the company is doing so far. For instance, if
we take the profit margin (Net Income / Net Sales), we can determine how good a company is
doing and then decide if our investment will be valuable and hold a high return. Levi’s
generates a margin of 5 percent, while Gap has a margin of only 2.8 percent. This margin
given is 5 years annual.

Market ratios
Last but not least, we calculate the market value measures. These measures can be broken
down to different ways of calculations such as the PE ratio. To define the price¬ earnings
ratio, we take the market value per share and divide that by the earning per share. By this we
conclude that companies are competitors but the ratio of Gap is higher 32.34 than Levi’s
23.25. and the share price of Gap is $30.89 which is little bit higher than that of Levi’s which
is $28.

Conclusion
After reviewing the competitive analysis, it can be seen that Levi Strauss & Co. and Gap, Inc.
are not only direct competitors but also close ones – both physically and financially. Both of
their headquarters are located in San Francisco, California, which could be a main tip off to
the historical battle between the two brands. However, there is no question which company
has an influence in the history books. On the other hand, what Gap, Inc. lacked in historical
inventions and presence throughout American history, they made up for in assortment of
product offerings and brand variety. Interestingly enough, Gap’s financials would appear to
be stronger in both net revenue and net income after operating expenses; however, after
reviewing their respective gross margin percent, Levi Strauss & Co. seems to have the foot
up at this point. In conclusion, Levi’s strength throughout tough times in history makes it
durable, strong, and optimistic for future growth.