The Estée Lauder Companies Inc.

COMPANY: THE ESTÉE LAUDER COMPANIES INC.

COMPANY RATIO BENCHMARK RATIO

I. Asset Management:

1. Current ratio 1.58 2.50

2. Quick ratio 0.99 0.46

3. Fixed asset turnover 7.11

4. Total asset turnover 1.29

5. Inventory turnover 1.76 3.00

6. DSO 40.77

Analysis: Current ratio of The Estee Lauder Companies Inc. is greater than 1. It means the company has high liquidity ratio and they can make required payments in a short time. However, comparing to the benchmark ratio, 1.58 is much smaller than 2.50. It means even the company have high liquidity ratio; it is still risky if comparing to competitors.

If subtracting Inventory from Current asset, its quick ratio is 0.99, which is higher than the benchmark ratio of 0.46. So, based on the quick ratio, we can say that Estee Lauder Co. could afford to pay its short-term financial liabilities.

Fixed asset turnover of 7.11 means on every dollar of fixed assets, the company can generate $7.11 of sales. However, total asset turnover is only 1.29, which is much smaller than fixed asset turnover.

Inventory turnover of 1.76 is smaller than the benchmark ratio of 3.00. Based on this ratio, we can say that the company either keeps more inventory than needed or does not make enough sales to match with purchased inventory.

DSO of 40.77 means that normally, it takes the company about 41 days to collect its credit sales.

II. Debt Management:

1. Debt/Equity Ratio 0.62 0.22

2. Times Interest Earned 22.78

Analysis: The Estee Lauder Co. has higher Debt/Equity ratio than the benchmark (0.62 compares to 0.22). This ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders).

Times Interest Earned ratio of 22.78 means the company’s income is around 23 times higher than its interest expense for the year. With a high Times Interest Earned ratio, it shows the company can afford to pay its interest payments when they come due.

III. Profitability:

1. Operating Margin 14.3%

2. Profit Margin 9.9% 10.5%

3. ROA 12.8%

4. ROE 30.9% 25.8%

5. Basic Earning Power 17.5%

Analysis: Operating Margin ratio of the company is 14.3%, which means for every dollar of income, only 14 cents remains after the operating expenses have been paid. This also means that only 14 cents is left over to cover the non-operating expenses.

Profit margin of 9.9% compared to the benchmark of 10.5% shows that 9.9% of sales are left over after all expenses are paid by the business. The company ratio is a little smaller than the benchmark ratio, so the company should either generate more revenues while keeping expenses constant or keep revenues constant and lower expenses.

ROA of 12.8% shows on every dollar spent to purchase assets, the company can earn about 13 cents in net income. It also shows that the company is more effectively managing its assets to produce greater amount of net income.

ROE of 30.9%, which is higher than the

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