The Prada Group
Orly Brooker
Financial Accounting—Summer Semester
http://www.pradagroup.com/documents/announcement/EAnnual-Report-2012.pdf
Introduction
 Chief Executive Officer: Patrizio Bertelli
 Location of Home Office: Via A. Fogazzaro, 28; 20135 Milan, Italy
 Ending date of last fiscal year: January 31st, 2013
 Principal Products: “The PRADA Group is one of the world’s
leaders in the design, production and distribution of luxury
handbags, leather goods, footwear, ready-to-wear apparel,
accessories, eyewear and fragrances. The Group owns some of
the most prestigious international brands: Prada, Miu Miu, Car
Shoes and Church’s.”—http://www.pradagroup.com/en/group/group-profile
 Main Area of Activity: The Prada Group saw the most sales in the
Asia Pacific area (1,160,166 in thousands of Euro out of Net
Sales of 3,297,219 in thousands of Euro)
Audit Report
 Independent Auditors: Deloitte & Touche S.p.A.
 In the Independent Auditors’ Report, the auditors
stated, after a careful and meticulous review, that the
Prada Group’s financial statements were prepared
according to the International Financial Reporting
Standards of the European Union, present a fair look
at the company’s financial position as of January 31st,
3013, and line up with the company’s internal system
of operations (management).
Stock Market Information
(for the Prada Group stock, traded on the HKSE, stock code 1913)
 Most Recent Stock Price: $74.85
Hong Kong Dollars
 Twelve Month Trading Range: High at $82.30 on
3/11/2013—Low at $42.90 on 6/4/2012
 Dividend per Share: $0.9 per share (EUR 230.3 million final dividend)
 Date of Information: May 31st, 2013
 I would either buy shares of this company’s stock or hold
them. The Prada Group’s stock appears based on the above
information to be rising in value, so I would either invest
long-term in the company by purchasing roughly 20-50%
ownership now as stock is rising, or I would wait to see if it
might rise any higher before selling any previously
purchased shares (if I had been holding investments in the
short term, such as trading securities or available for sale
securities).
Income Statement
(from the
consolidated financial statement of the Prada Group)
Income Statement cont.
 The above income statement is presented in a multistep format, meaning
not all revenue accounts and expense accounts are listed together. Instead,
net revenue is listed first (income from operations/sales), and cost of
goods sold is subtracted, leaving us with the company’s gross profit.
Operating expenses (selling, administrative, general) were then subtracted
to give the operating income of the company, and other revenues and
expenses (interest, dividends) were added/subtracted to give income
before taxes, and a final net income from continuing operations of
$633,277 in thousands of Euros.
 The Prada Group’s net revenues increased by approximately $741,673
thousand Euros during the 2012 fiscal year, over a 29% increase from
2011, leading to an increase in gross margin, which reflects positively on
the growth of the company and its continued ability to generate sales.
Furthermore, the Prada Group saw an increase in net income from
continuing operations from the fiscal year ending 1/31/2012 to
1/31/2013 of approximately $196,852 thousand Euros, also displaying a
positive trend in the company’s growth.
Balance Sheet
(from the consolidated financial
statement of the Prada Group)
Balance Sheet
Balance Sheet
 The changes seen in the key balance sheet accounts generally
denoted positive growth for the Prada Group. Its net current assets
saw an increase, its total liabilities saw a slight decrease, and its
shareholders’ equity saw a large increase (showing that stock
ownership in the company is increasing, hence it is seen as a
beneficial and worthwhile investment).
 Most noteworthy are the changes in the total assets and noncurrent liability accounts. Total assets increased by approximately
15% mainly due to cash and trade receivable increases. While total
current liabilities saw a slight increase, meaning the company has
more promises and responsibilities to fulfill in the near future, total
non-current liabilities saw a significant decrease, mainly due to a
decreasing long-term financial payables account. This shows that
the Prada Group has been able to debit this account buy starting to
pay what it owes in terms of financing activities. This further
proves the positive financial standing of the company and would
appear favorable in the eyes of potential investors .
Statement of Cash Flows
(from the consolidated financial statement of the Prada Group)
Statement of Cash Flows
Statement of Cash Flows

During the 2011 and 2012 fiscal years, the Prada Group’s net cash flows from
operations were greater than net income.

Cash flows from operations have been more than net income for the past two years, but
the difference between the two saw a large increase in 2012. In 2011, cash flow from
operations was greater than than net income by $43,529 thousand Euros. In 2012, the
difference was $125,995 thousand Euros.

The company has been growing mainly due to sales as opposed to through investing
activities, highlighting the Group’s focus on and commitment to effective sales efforts;
however, the Group made significant investments in the purchase of PP&E during
2012.

The company’s primary source of financing was from new long term borrowings
arranged ($70,627 thousand Euros in cash). It’s significant to note that most all other
cash financing accounts in 2012 showed a decrease, i.e. outflow of cash, so cash paid for
financing activities greatly increased. The company paid off accounts such as repayment
of short-term potion of long-term borrowings, contributing to the overall outflow of
cash due to financing activities. This could be a display of the Prada Group choosing to
pay off many liabilities in the year that it achieved such high sales numbers.

Closing cash and cash equivalents has seen an overall increase over the past two years
from $353,554 thousand Euros to $571,222 thousand Euros, a $218,168 thousand Euros
difference.
Accounting Policies (cash,
revenue, investments)
 “Cash and cash equivalents are carried
in the statement of financial position at
nominal amount. Cash equivalents
include all highly liquid investments
with an original maturity of three
months or less.”
 “For the purposes of the cash flow
statement only, cash and cash
equivalents comprise cash on hand,
bank accounts and deposit accounts.”
 “Revenues from the sale of goods are
recognized in the income statement
when the risks and rewards of
ownership are transferred to the
buyer; the value of the revenues can be
reliably measured; all control over the
goods sold has ceased; the economic
benefits generated by the transaction
will probably be enjoyed by the
Company; the costs pertaining to the
transaction can be reliably measured.”
 “Investments in associated
undertakings and joint ventures…are
accounted for under the equity method
of accounting.”
 “Any goodwill included in the historical
cost of the investment is tested
annually for impairment.”
 “The parent company’s share of the
profit or loss of the investee is
recorded in its income statement.
Dividends received from the investee
company reduce the carrying amount
of the investment.”
 “If a subsidiary…uses accounting
policies other than IFRS, adjustments
are made to bring its accounting
policies into line with those of the
parent company.”
Accounting Policies (accts.
receivable, PP&E, inventory)
 “Trade accounts receivable are carried at
nominal amount less the provision for
doubtful accounts, estimated based on an
assessment of all disputed and doubtful
balances at the reporting date. Bad debts
are written off when identified.”
 “Raw materials, work in progress and
finished products are recorded at the lower
of acquisition cost, production cost and
net realizable value. Cost comprises
direct production costs and those
overheads that have been incurred in
bringing the inventories to their present
location and condition.”
 “Provisions, adjusting the value of the
inventory, are made for slow moving,
obsolete inventories and if the estimated
selling price is lower than cost.”
 “Property, plant and equipment are
recorded at purchase cost or production
cost, including any charges directly
attributable. They are shown net of
accumulated depreciation calculated on
the basis of the useful lives of the assets
and any impairment losses. Interest costs
on borrowings…are capitalized to
increase the value of the asset.”
 “The costs included under leasehold
improvements relate to refurbishment
work carried out on assets not owned by
the Group.”
 “All costs incurred during the period
between the start of refurbishment work
and the opening of the store are capitalized
as leasehold improvements….”
Accounting Policies cont. (notes
topics)
1.General information
2. Basis of preparation
3. Amendments to IFRS
4. Scope of consolidation
5. Basis of consolidation
6. Main accounting policies
7. Acquisition, disinvestments, and incorporation of subsidiaries
8. Operating segments
9. Cash and cash equivalents
10. Trade receivables, net
11. Inventories, net
12. Derivative financial instruments: assets and liabilities
13. Receivables and advance payments from parent companies and other related parties
14. Other current assets
Accounting Policies cont. (notes topics)
15. Property, plant and equipment
16. Intangible assets
17. Investments
18. Other non-current assets
19. Short-term financial payables and bank overdrafts
20. Payables to parent companies and other related parties
21. Trade payables
22. Tax payables
23. Obligations under finance leases
24. Other current liabilities
25. Long-term financial payables
26. Long-term employee benefits
27. Provisions for risks and charges
28. Other non-current liabilities
Accounting Policies cont. (notes
topics)
29. Shareholders’ equity - Group
30. Shareholders’ equity
31. Net revenues
32. Cost of goods sold
33. Operating costs
34. Interest and other financial income/(expenses), net
35. Income taxes
36. Earnings and Dividends per share
37. Additional information
38. Remuneration of Board of Directors, five highest paid individuals and Senior Management
39. Transactions with related parties
40. Commitments
Financial summary
Definitions
43. Consolidated companies
44. Events after the reporting period
Liquidity Ratios 2011
 Working Capital: 1,117,503716,584=$400,9191 It appears the
company was in a position to
quickly acquire cash (i.e. liquid).
 Current Ratio:
1,117,503/716,584 =1.56 It
appears the company was liquid
enough to cover current liabilities
with current assets.
 Receivable Turnover:
2,555,506(SALES)/(266,404+27
4,175/2)(Avg. AR)=9.45 This
suggests that credit granting and
collecting activities were relatively
successful.
 Avg. days’ sales uncollected:
365/9.45=39 days Revenue was
collected relatively quickly.
 Inventory Turnover:
727,581(COGS)/((374,785+280,
409)/2)(Avg. Inven.)=2.22 This
suggests that inventory cycled
through operations relatively
efficiently.
 Avg. day’s invt. on hand:
365/2.22=164 days Inventory
was held for a lengthy period, but
this is to be expected for luxury
retail.
 Operating cycle: 39 days + 164
days=203 days. Note that this is
less than a year.
Liquidity Ratios 2012
 Working Capital: 1,387,449742,062=$645,387 It appears the company
is in an even better position to quickly
acquire cash (i.e. liquid) than in the previous
year.
 Current Ratio: 1,387,449/742,062=1.87
It appears the company is slightly more
liquid, in a better position to cover current
liabilities with current assets.
 Receivable Turnover:
3,297,219(SALES)/(304,525+266,404/2
)(Avg. AR)=11.55 This suggests that credit
granting and collecting activities were more
successful that the previous year, and efficient
overall.
 Avg. days’ sales uncollected:
365/11.55=37 days Revenue was collected
slightly faster than the previous year, and
relatively quickly.
 Inventory Turnover:
920,678/((343,802+374,782)/2)=
2.56 This suggests that inventory
cycled through operations faster and
more efficiently that the previous
year.
 Avg. day’s invt. on hand:
365/2.56=143 days Inventory was
held for less than in the previous year
(still lengthy, but to be expected for
luxury retail).
 Operating cycle: 37 days + 143
days=180 days. The cycle is shorter
than the previous year. Note that this
is still less than a year.
Profitability Ratios 2011
 Profit Margin:
436,425/2,555,606=0.17 x
100=16% This shows that 17 cents
of every dollar of sales was a
profit, which is not particularly
high, but does indicate profitability.
 Asset Turnover:
2,555,606/((2,943,568+2,366,01
5)/2)=0.96 This indicates that the
company was using their resources
to generate sales in a very efficient
manner.
 Return on Assets:
436,425/((2,943,568+2,366,015)
/2)=0.16 x 100=16% This
indicates that total assets were
somewhat profitable.
 Return on Equity:
436,425/((1,822,743+1,204,350)
/2)=0.28x100=28% This
indicates that shareholders’
investments contributed
significantly to profit.
Profitability Ratios 2012
 Profit Margin:
633,277/3,297,219=0.19 x
100=19% This shows that 19
cents of every dollar of sales
was a profit, which is not
particularly high, but does
indicate profitability. It is two
cents higher than the previous
year.
 Asset Turnover:
3,297,219/((3,385,279+2,943,
568)/2)=1.04 This indicates
that the company was using their
resources to generate sales in a
very efficient manner, even more
so than the previous year.
 Return on Assets:
633,277/((3,385,279+2,943,5
68)/2)=0.20 x 100=20% This
indicates that total assets were
relatively profitable, slightly
more than the previous year.
 Return on Equity:
633,277/((2,320,022+1,822,7
43)=0.31x100=31% This
indicates that shareholders’
investments contributed
significantly to profit, although
slightly less than the previous
year.
Market Strength Ratios@
year end 12/31/2011
 Price/earnings per share
625,681,459 (group net income
in euro)/2,535,777,885(avg.
shares outstanding) =.17
This shows that the company’s
common stock represents
strong investment potential.
*Note: “On May 26, 2011, a
Shareholders’ Meeting of PRADA spa
resolved to change the par value of the
Company’s shares from Euro 1 to Euro
0.1 each. In accordance with IAS 33,
the number of shares in issue in 2010
was retrospectively adjusted for the
purposes of the calculation of earnings
per share.”
 Dividend yield
(5.0 Euro/cents)/35.15=0.14
This shows a small cash return on
shareholders’ investments, but this
is relatively normal for a fast
growing company.
Market Strength Ratios @
year end 12/31/2012
 Price/earnings per share:
625,681,459 (group net income
in Euro)/.2,558,824,000(avg.
shares outstanding)=.245
This shows that the company’s
common stock investment potential
increased significantly from the
previous year.
*Note: “On May 26, 2011, a
Shareholders’ Meeting of PRADA spa
resolved to change the par value of the
Company’s shares from Euro 1 to Euro
0.1 each. In accordance with IAS 33,
the number of shares in issue in 2010
was retrospectively adjusted for the
purposes of the calculation of earnings
per share.”
 Dividend yield:
(9.0 Euro/cents)/73.95=0.12
This shows a small cash return on
stockholders’ investment, but this is
relatively normal for a fast growing
company.
Solvency Ratios 2011
 Financing Gap:
 Debt to Equity:
1,112,601/2,226,984=0.50
This indicates that the shareholders,
not the creditors, exert primary
control in the company. This is a
positive sign in terms of solvency.
Days Payable:
(283,538(total accts.
payable)/727,581
(COGS))x365=142 days
Because the 2012 operating cycle
was 203 days, the company
experienced a financing gap of 61
days ; it was not able to self-finance,
i.e. it had to borrow money to pay
suppliers. However, the gap was not
particularly enormous, and
somewhat of a gap is relatively
normal for luxury retailers. This
does necessarily signify that the
company may be in trouble
financially.
Solvency Ratios 2012
 Debt to Equity:
 Financing Gap:
1,054,787/2,320,022=0452
Days Payable
This indicates that the shareholders,
not the creditors, exert primary
control in the company (even more
than the previous year!). This is a
positive sign in terms of solvency,
showing that the shareholders exert
more control this fiscal year than the
last. It serves as a positive sign for
the Prada Group in terms of its
shareholders’ equity and long-term
liabilities position. It is a number
that looks positive for potential
investors.
(845,720 (total accts.
payable)/920,678(COGS))x365=
131 days
Because the 2013 operating cycle
was 180 days, the company did
experienced a financing gap of 49
days (shorter than the previous
year); it was not able to self-finance,
i.e. it had to borrow money to pay
suppliers. However, the gap was not
particularly enormous, and
somewhat of a gap is relatively
normal for luxury retailers. This
does not in any way signify that the
company may be in trouble
financially.
Industry Situation &
Company Plans
In its annual report, the Prada
Group emphasized its
commitment to creating a
certain style, one that extends
well beyond purely the physical
manufacturing of the products
for which the Group is known.
The Group cites “interest and
careful observation of the
world” in allowing it to achieve
the originality and innovation
that has, in turn, resulted in a
“new way of creating fashion.”
http://www.pradagroup.com/documents/announcement/E
-Annual-Report-2012.pdf
It is this outlook that has served
as the basis of the Prada Group’s
activity and has led to the success
of the Group’s brands; Prada,
Miu Miu, Church’s and Car Shoes.
The Group maintains its
dedication to quality and superb
craftsmanship, which it insists
results in an “exclusive
relationship between each
customer and the Prada Group
brands” and represents a core
tenant behind the Group’s
continued success.
http://www.pradagroup.com/documents/announcement/E
-Annual-Report-2012.pdf
Industry Situation &
Company Plans
 Based on the financial success its past fiscal
year, the Prada Group expressed plans to
continue with the “brand positioning” and
“retail expansion” strategies it has been
employing in recent years. The Group
maintains its conviction that these
strategies will again prove successful
despite a consistently “challenging”
economic landscape.
http://www.pradagroup.com/documents/announcement/E-Annual-Report-2012.pdf (Outlook for 2013)
Industry Situation &
Company Plans
 The Prada Group achieved much
of its financial success this past
fiscal year owing largely in part to
the strength of its Asian market.
However, the company still has
“room to grow” in luxury good
markets where it currently
occupies a smaller influence, like
South America and the Middle
East, and plans to focus on these
areas, as well as US department
stores, in the coming year.
http://www.accessoriesmagazine.com/67609/pradas-full-yearprofit-jumps-plans-new-focus-on-u-s-south-america-mideast
 A recent press release
announced the opening of a
Miu Miu store in Abu Dhabi,
marking the Group’s continued
effort to expand into markets
where it has yet to meet its full
sales potential.
http://www.pradagroup.com/system/pdfs/100/original/Miu
%20Miu%20Abu%20Dhabi%20Marina%20Mall_ENG.pdf
Executive Summary
 The Prada Group has seemingly mastered the art of
luxury branding and styling. The Group places high value
on impeccable presentation and true authenticity, while
honing in on marketing and sales strategies that have
continually proven successful in generating sales. I am
confident that so long as the Group continues in its current
direction, maintaining its focus on achieving the utmost
creativity and grace in the industry, it will continue to see
financial success and investor interest/support.