Avon Case

Based on Avon's financial statements for the year 2008 and 2009 the company's performance had slightly weakened. Looking at gross profit margin there was only a slight decrease of -0.52% from 2008, but when we look at the net profit margin there was a difference of -2.16% this shows that the company was earning less profit after taxes than the previous year. There was a major decrease in shareholders equity that resulted a -75.07%, which meant the shareholders that invested in Avon was affected greatly as they were doing fairly well in 2008 but in 2009 the shareholders was earning significantly less. The debt to equity ratio was the only good decrease in number that Avon had, the ratio should usually be less than 1.0 but in 2008 they had a ratio of 7.53 this indicates high debt, low creditworthiness and results in a weaker balance sheet strength. It showed that fewer products were sold as the inventory turnover also decreased, which resulted the days of inventory to increase from 2008 as fewer products, is being sold the average number of days of inventory held increases.

When comparing to Avon's competitors such as Revlon there was a similar trend there was also a decrease of -2% in their profit margin, in overall their performance had also weakened like Avon. By seeing how other companies are doing we can justify whether the company is not doing well due to their strategy or simple because of other external factors. Looking over a few articles I was able to find that the financial world was falling apart by the end of 2008 there was a huge drop in GDP and continued to go down throughout 2009. Of course this affected everyone, as unemployment rate increased people were more cautious of what they are spending on. This explains why Avon's inventory turnover decreased as the days of inventory increased in 2009 because people are more conscious of what they are buying this resulted fewer products being sold. It is hard to compare with just two years, to be able to see the trend we would need to look at the whole picture in a span of couple of years to see whether the company has a increasing trend or decreasing trend. If Avon showed more of a increasing trend though the years and had a sudden decrease in one particular year then we would have to look at further factors such as products recalled or recession. But if Avon has a continuous decreasing trend then it's time for Avon to look over their strategy and re-evaluate using tools such as SWOT analysis to see how they can improve themselves in the current market.