The risk of bankruptcy issue has become important for Burberry and Mulberry’s investor and shareholders recently. There are several data quantitative methods, including Beaver’s, Altman’s(Z score) and qualitative method which is Argenti’s (A score) to indicate the risk of firms and help stakeholders make investment decisions in the future.
The pioneer is Beaver’s (1966) defined that failed or non-failed is as the inability of firm to pay its financial obligations as they mature. Every ratio (See Appendix1) obviously shows that Mulberry has more risk that Burberry through calculation. Compared with Mulberry, Burberry has positive cash flow, liquidity that means Burberry has an ongoing ability to generate cash that is money available to invest business in growth. Besides, a higher liquidity ratio shows company is more liquid and has better coverage of outstanding debts. company make more profit by disperse cash and more dividends could be accepted by shareholders. Burberry and Mulberry indicates that positive working capital could stimulate company to reinvest project and shareholders could obtain more dividends. However, their net income ratio has slightly fluctuation of Burberry and hardly growth of Mulberry, it may have trouble paying back creditors or bankruptcy, If a company's current assets do not exceed current liabilities.
It is important signal that Burberry’s capital structure significantly decline, the investor should evaluate whether company has enough funds to meets their debt(current) because of the wealth of shareholders. Beaver’s method benefit to stakeholders understanding because of he applied a univariate model in which a classification model was carried out separately for each ratio (Janer,2011). Conversely, it has a number of potential problems, due to too many ratio to evaluate one company, it would make people confused to classification results. Financial ratio also be restrict on different industries and size such as Moody’s company (Beaver, 1966).
Based on Beaver, Altman(1968) proposed Z score which has rigorous indicate to analysis whether a company have bankruptcy. Burberry, Mulberry has relatively safe score that is all above three, that is lower risk of bankruptcy, whereas Mulberry need to notice some unconfident number (Altman, 2001). Z scores used to compare raw scores that are taken from different tests especially when the data are at the interval of management. In addition, Z score transformation takes into account both the mean...