Requirement 3 – Interpretation financial statements

Name Student number

Gabriel Martines Montanhole 643872
Idil Cepni 640564
Oscar Lefeuvre 644593
Lucia Valls Martinez 647459
Alex Biebernick 641276

(Write your answer to Requirement 3 below. Your answer should be limited to a maximum of
800 words.)

The vertical analysis of Boohoo reveals that Boohoo's asset with the biggest percentage in
total fixed assets is tangible fixed assets, with a percentage of 24.68% for 2019, 20.93% for
2020, and 18.25% for 2021 of total assets. The high fixed assets may be due to Boohoo's
focus on online sales and the aim of capitalizing on shopping habits. Looking at total
current assets, the financial statement reveals that cash and cash equivalents represent
46.35% for 2019, 44.25% for 2020, and 37.78% for 2021.

Furthermore, the horizontal analysis of Boohoo reveals that the most significant changes
from 2020 to 2021 are recorded in the "Intangible fixed assets" and "Other fixed assets"
items of the balance sheet. "Intangible fixed assets" increased by 119% in 2021 compared
to 2020 'and "Other fixed assets" increased by 191% in 2021 compared to 2020. As
confirmed and explained by Deena Kamel in an article for thenationalnews.com, "The
Covid-19 pandemic [was] set to increase companies' investments in intangible assets –
such as research and development, software and patents"(1) to develop new business
models, more adapted to a pandemic-triggered recession but also to markets which tend to
be increasingly digitized. Additionally, a reason for such an increase in "Other fixed assets",
which implies an increase in financial assets, can be found in the standardized income
statement, where "Net profit" increased by 28.47% between 2020 and 2021. Thus, this has
allowed Boohoo to increase its liquidity through cash, bonds, stocks, bank deposits, and
mutual funds, which according to "Investopedia"(2) is a way for companies to strengthen a
company's "ability to pay debt obligations, or current liabilities, without having to raise
external capital or take out loans" which is coherent with the post-covid economic
environment.

Subsequently, when analyzing Puma's situation vertically, we can gain insight into what

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was happening worldwide. During the 2020 reporting period, a reduction in the current
assets alongside an increase in the current liabilities can be observed. The higher
proportion of current liabilities (35.61%→39.98%) and the lower proportion of current
assets (56.67%→ 55.79%) are directly correlated to the COVID-19 pandemic, which
caused crises throughout industries. As current assets and liabilities refer to what is set to
be collected and paid during twelve months, a global crisis will catalyze the negative effects
and make Puma receive proportionally less income while adjusting to the pandemic and
spending more money. Puma even stated within their annual report that "The negative
impact of the COVID-19 pandemic not only affected PUMA's net sales but was also the
main reason for the decline in profitability respectively operating result (EBIT) during the
past financial year". Despite this, the numbers seen in Puma's vertical analysis have not
varied significantly. The company was able to maintain its numbers proportionally stable for
the most part, an impressive feat considering the environmental conditions faced.

Lastly, the horizontal analysis of Puma shows that significant changes from 2020 to 2021
are recorded in the "Operating Profit" and "Net Earnings" in the income statement. In 2021,
"Operating Profit" increased by 166.3% from €209.2 million to €557.1 million compared to
the previous year, and "Net Earnings" increased by 292.4% from €78.9 million to €309.6
million compared to 2020. This is likely due to a growth in sales (with the improvement in
gross profit margin) and the slight increase in other operating income and expenses
compared to sales growth (3). In 2021, Puma's gross profit increased by 32.5% from
€2,458.0 million to €3,257.8 million. According to the article "Inside The Call: Puma Sees
Double-Digit Growth Streak Continuing In 2022", this improvement was caused by a high
sales rate and less promotional activity (4). Furthermore, the expenses were used
effectively for more Puma-owned retail stores, sales-associated distribution (launched
online stores in the United Arab Emirates and Mexico), warehousing costs (expanding
logistics centers in the primary markets), and marketing. In 2021, by partnering with the
best athletes and signing new ambassadors, Puma gained a reputation as a brand which
also caused an increase in net earnings and operating profits(3).

Comparing the horizontal analysis of both Boohoo and Puma, it is seen that the significant
changes in values between 2020 and 2021 were recorded in different financial statements.
While Boohoo made the biggest changes in "Intangible fixed assets" and "Other fixed
assets" items of the balance sheet, Puma experienced the biggest changes in "Operating
Profit" and "Net Earnings" in the income statement.

The most noteworthy distinction between the vertical comparison of both companies would

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 be their percentage of "Total Non-Current Liabilities." While in Boohoo, the value fluctuated
between 2.28-4.16%, Puma's report consists of much higher values spanning between
20.53-22.44%. Additionally, despite Puma observing growth in current assets throughout
the years (56.67%→60.93%), Boohoo's current assets witnessed an opposite effect
(67.38%→62.25%), having an increase in their fixed assets (32.62%→37.75%) percentage
instead.

References If you use any other resource than the annual reports of the two companies in
your answer, then please cite your sources. Citations are not part of the word count.

APA style citation

1. Kamel, D. (2021, July 4). Covid-19 pandemic to boost investments in intangible
assets, Carlyle study shows. The National.
https://www.thenationalnews.com/business/economy/covid-19-pandemic-to-boost-
investments-in-intangible-assets-carlyle-study-shows-1.1088773

2. Maverick, J.B.(2021, June 25). Should Companies Always Have High Liquidity? |
Investopedia | Updated June 25, 2021
https://www.investopedia.com/ask/answers/011215/it-important-company-always-
have-high-liquidity-ratio.asp#:~:text=A%20company's%20liquidity%20indicates
%20its,company%20could%20imminently%20face%20bankruptcy.

3. Results of Operations | PUMA Annual report 2021. (2021). Puma.com.

https://annual-report.puma.com/2021/en/combined-management-report/results-of-
operations.html

4. Ryan, T. J. (2022, February 23). Inside The Call: Puma Sees Double-Digit Growth
Streak Continuing In 2022 | SGB Media Online. SGB Media Online | Active
Lifestyle Market B2B Information. https://sgbonline.com/inside-the-call-puma-sees-
double-digit-growth-streak-continuing-in-2022/