1. SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN THE DESIGN SCHOOL Foundation In Natural & Built Environments Assignment : Financial Ratio Analysis Company : Pandora Jewelry Subject : Basic Accounting [FNBE0145] Group Members : Gan Jet Foong (0315998) Than Lek Mei (0315538) Submission Date : 30th May 2014

2. Company's background & recent development Pandora Jewelry is a Danish company founded in 1982 by two goldsmiths, Per and Winnie Enevoldson, who are husband and wife. The company's headquarter is located in Copenhagen, Denmark. The company's goal is to offer female across the world of high quality and fashionable jewellery products at affordable prices. In 1989, Pandora started manufacturing in Thailand and now with more factories, each piece of Pandoras' product is handmade. The company is well known for its customisable service, which allowed customers to chose among its hundreds of charms and combine them. The company sells variety of products such as watches, ring, earrings, pendants and other fashion accessories. In 2005, Pandora became multibillion-dollar international brand and the third-largest jewelry company in the world. In 2008 Pandora is listed on the NASDAQ OMX Copenhagen stock exchange in Denmark. More than one piece of Pandora jewellery was sold every second in 2011. In year 2013, Pandora's total revenue reached DKK 9 billion. Today, Pandora's products are sold in more than 70 countries on six continents. 3. Ratio Analysis Profitability 4. ( Units represented in Danish Krone, DKK millions) ( Units represented in Danish Krone, DKK millions) Profitability Ratios 2012 2013 Interpretation Return on Equity (ROE) 1202 5724.5 x100 = 21% 2220 6250 x100 =35.5% During the 2012-13 period, the business ROE has increased from 21% to 35.5%. This means the owner is getting more return from his investment. Net Profit Margin (NPM) 1202 6652 x100 = 18.1% 2220 9010 x100 =24.6% During the 2012-13 period, the NPM has increased from 18.1% to 24.6%. This means the business is getting better at controlling its overall expenses. Gross Profit Margin (GMP) 4429 6652 x100 = 66.6% 5999 9010 x100 =66.6% During the 2012-13 period, the GPM has remained at 66.6%. This means the business is good at controlling or maintaining its COGS. Selling Expenses Ratio (SER) 2084 6652 x100 = 31.3% 2397 9010 x100 =26.6% During the 2012-13 period, the SER has decreased from 31.3% to 26.6%. This means the business is getting better at controlling its selling expenses. General Expenses Ratio (GER) 870 6652 x100 = 13.1% 921 9010 x100 =10.2% During the 2012-13 period, the GER has decreased from 13.1% to 10.2%. This means the business is getting better at controlling its general expenses. Financial Expenses Ratio (FER) 128 6652 x100 =1.9% 106 9010 x100 =1.2% During the 2012-13 period, the business FER has increased from 1.9% to 1.2%. This means the business is getting better at controlling its financial expenses. Stability 5. P/E ratio Stability Ratios 2012 2013 Interpretation Working Capital (WCR) 3239 1604 = 1.9:1 3837 2304 =1.66:1 During the 2012-13 period, the WCR decreased from 1.9:1 to 1.66:1. This means that the business ability to pay current liability with current asset is getting worse. In addition, the business does not satisfy the minimum requirement of 2:1. Total Debt (TDR) 2376 8414 x100 = 28.2% 2813 9275 x100 = 30.3% During the 2012-13 period, the TDR increased from 28.2% to 30.3%. This means that the business total debt has increased. However, it satisfy the maximum limit of 50% Stock Turnover (STR) 365 days/2223 1463.5 = 240.3 days 365 days/3011 1404 = 170.2 days During the 2012-13 period, the STR decreased from 240.3 days to 170.2 days. This means the business is selling its inventory faster. Debtor Turnover (DTR) 365 days/ 3326 1259.5 = 138.2days 365 days/4505 1532 =124.1days During the 2012-13 period, the DTR increased from 138.2 days to 124.1 days. This means the business is collecting its debts faster. Interest Coverage (ICR) 1249 47 =26.6 times 2249 29 =77.6 times During the 2012-13 period, the ICR increased from 26.6 times to 77.6 times . This means the business ability to pay its interest is better. In additional, it satisfy the minimum requirement of 5 times. 6. ( Units represented in Danish Krone, DKK) 404.20 = 19.40 = 20.84 Investment Recommendation According to the analysis, the company is not suitable for investing. In the profitability ratios, the company shows good profitability from 2012-2013. The company had great increased in the Return on Equity (ROE) from 21% to 35.5% so the owner is getting more return from his investment. In the stability ratios, the company also demonstrated a strong stability from 2012-2013. The company had great improvement in Interest Coverage (IE) from 26.6 times to 77.6 times, this means that the company's ability to pay back interest is better. However, based on the calculation above, it shows that the P/E ratio is 20.84, this means that the investor has to wait for 20 years to claim back the original investment. The company's shares are available at an expensive price. A conservative investor will normally pay no more than P/E of 15 for a share that he likes. In conclusion, this company is not suitable for investment. Appendix CONSOLIDATED 7. INCOME STATEMENT 1 JANUARY - 31 DECEMBER DKK million 2012 2011 Revenue 6,652 6,658 Cost of sales -2,223 -1,798 Gross profit 4,429 4,860 Distribution expenses -2,084 -2,053 Administrative expenses -870 -749 Operating profit 1,475 2,058 Financial income 132 660 Financial expenses -128 -349 Profit before tax 1,479 2,369 Income tax expenses -277 -332 Net profit for the year 1,202 2,037 Attributable to: Equity holders of PANDORA A/S 1,202 2,037 Total 1,202 2,037 Earnings per share and dividend Profit for the year attributable to ordinary equity holders of the parent, basic 9.2 15.7 Profit for the year attributable to ordinary equity holders of the parent, diluted 9.2 15.7 COMPREHENSIVE INCOME STATEMENT Net profit for the year 1,202 2,037 Exchange rate differences on translation of foreign subsidiaries -65 247 Commodity hedging instruments Realised in financial income and expense 8 -127 Realised in Cost of sales 167 -173 Realised in inventory end of year -48 -231 Value adjustment 7 38 Interest rate hedging instruments Realised in financial income and expense 1 - Value adjustment - -3 Foreign exchange hedging instruments Realised in financial income and expense 101 5 Value adjustment -33 -60 Income tax on other comprehensive income -18 13 Other comprehensive income, net of tax 120 -291 Total comprehensive income for the year 1,322 1,746 Attributable to: Equity holders of PANDORA A/S 1,322 1,746 Total 1,322 1,746 40 Pandora annual report 2012 8. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER DKK million notes 2012 2011 ASSETS Non-current assets Goodwill 12, 13 1,922 1,928 Brand 12, 13 1,053 1,053 Distribution network 12 331 336 Distribution rights 12, 13 1,045 1,064 Other intangible assets 12 136 95 Property, plant and equipment 14 472 429 Deferred tax assets 15 190 209 Other non-current financial assets 26 34 Total non-current assets 5,175 5,148 Current assets Inventories 16 1,318 1,609 Trade receivables 17,18 940 900 Other receivables 18 502 177 Tax receivables 138 41 Cash and short-term deposits 18 341 176 Total current assets 3,239 2,903 Total assets 8,414 8,051 EQUITY AND LIABILITIES Shareholders equity 20 Share capital 130 130 Share premium 1,248 1,248 Treasury shares -38 -38 Foreign currency translation reserve 703 768 Hedge reserve -51 -236 Other reserves - 88 Proposed dividend for the year 715 715 Retained earnings 3,331 2,736 Total shareholders equity 6,038 5,411 Non-current liabilities Interest-bearing loans and borrowings 18 151 375 Provisions 21 7 64 Deferred tax liabilities 15 552 552 Other long-term liabilities 18 2 2 9. Total non-current liabilities 712 993 Current liabilities Interest-bearing loans and borrowings 18 7 10 Provisions 21 463 230 Trade payables 18 219 288 Income tax payables 283 344 Other payables 18,19 692 775 Total current liabilities 1,664 1,647 Total liabilities 2,376 2,640 Total equity and liabilities 8,414 8,051 group accounts 41 10. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 1 JANUARY - 31 DECEMBER DKK million Notes 2013 2012 CONSOLIDATED INCOME STATEMENT Revenue 2.1, 2.2 9,010 6,652 Cost of sales 2.3 -3,011 -2,223 Gross profit 5,999 4,429 Sales, distribution and marketing expenses 2.3 -2,397 -2,084 Administrative expenses 2.3 -921 -870 Operating profit 2.2 2,681 1,475 Finance income 4.6 167 132 Finance expenses 4.6 -106 -128 Profit before tax 2,742 1,479 Income tax expense 2.5 -522 -277 Net profit for the year 2,220 1,202 Attributable to: Equity holders of PANDORA A/S 2,220 1,202 Net profit for the year 2,220 1,202 Earnings per share 4.2 Earnings per share, basic (DKK) 17.2 9.2 Earnings per share, diluted (DKK) 17.0 9.2 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Net profit for the year 2,220 1,202 Items that may be reclassified to profit (loss) for the period: Exchange rate differences on translation of foreign subsidiaries -355 -65 - Commodity hedging instruments: Realised in finance income - 8 Realised in inventory 268 119 Value adjustment -341 7 - Interest rate hedging instruments: Realised in finance income - 1 - Foreign exchange hedging instruments: Realised in finance income -9 101 Value adjustment -16 -33 Income tax on other comprehensive income 2.5 6 -18 Other comprehensive income, net of tax -447 120 11. Total comprehensive income for the year 1,773 1,322 Attributable to: Equity holders of PANDORA A/S 1,773 1,322 Total comprehensive income for the year 1,773 1,322 42 PANDORA ANNUAL REPORT 2013 CONSOLIDATED BALANCE SHEET AT 31 DECEMBER DKK million Notes 2013 2012 ASSETS Goodwill 1,904 1,922 Brand 1,053 1,053 Distribution network 300 331 Distribution rights 1,042 1,045 Other intangible assets 318 136 Total intangible assets 3.1 4,617 4,487 Property, plant and equipment 3.2 497 472 Deferred tax assets 2.5 276 190 Other non-current financial assets 48 26 Total non-current assets 5,438 5,175 Inventories 3.3 1,490 1,318 Financial instruments 4.5 - 4 Trade receivables 3.4 895 940 Tax receivables 35 138 Other receivables 731 498 Cash 4.3 686 341 Total current assets 3,837 3,239 12. Total assets 9,275 8,414 EQUITY AND LIABILITIES Share capital 4.1 130 130 Share premium 1,248 1,248 Treasury shares -738 -38 Reserves 205 652 Proposed dividend 823 715 Retained earnings 4,794 3,331 Total shareholders equity 6,462 6,038 Provisions 3.5 35 7 Loans and borrowings 4.3 - 151 Deferred tax liabilities 2.5 471 552 Other long-term liabilities 3 2 Total non-current liabilities 509 712 Provisions 3.5 471 463 Loans and borrowings 4.3 49 7 Financial instruments 4.5 148 47 Trade payables 539 219 Income tax payables 546 283 Other payables 551 645 Total current liabilities 2,304 1,664 Total liabilities 2,813 2,376 Total equity and liabilities 9,275 8,414 GROUP ACCOUNTS 43 13. Reference list Ani, R. (2009, May 3) Unforgettable Moments. Retrieved on 26 May 2014, from http://pandoragroup.com/Media/Pandora_In_Brief/pandora-milestones Mary, T. B. (2014. January 22) how pandora jewellery grew to become a mega global brand. Francise Focus. Retrieved on 26 May 2014, from http://business.financialpost.com/2014/01/22/how-pandora-jewellery-grew-to-become-a- mega-global-brand/ Natalia, R. (2011, December 6) A Danish Fairy Tale Gone Awry. Retrieved on 26 May 2014, from http://www.nytimes.com/2011/12/07/fashion/07iht-ACAJ-PANDORA07.html Unknown, (2014). Pandora Jewelry Basic Info. Retrieved on 26 May 2014, from https://www.facebook.com/pandorajewelry/info Unknown, (2014). The Pandora Story. Retrieved on 26 May 2014, from http://www.pandora.net/en-us/pandora-company/about-pandora/the-pandora-story Varens, H. (2012, June 13). Fashion & Style. Retrieve on 26 May 2014, from http://pandoraaddict.wordpress.com/faqs/what-is-pandora/