Feb 15, 2021 in Coursework

Liquidity of Burberry and Hugo Boss

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Hugo boss

Hugo Boss is a luxury fashion company based in Metzingen, Germany. Due to the economic problems during its early ages, the company was forced to go bankrupt in the 1930s but reached an agreement with its creditors which saw them leave it with only a few sewing machines to restart afresh. In 2010, the company had sales of about 1.7 billion and a net worth of 190 million and held loyalties of 78 million (42% of the net worth).

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As of 30th June 2013, the current liabilities of the company exceeded the current assets by $6.0 billion. This was attributed to the short-term borrowing under the commercial paper program. The company anticipated that it was able to support the short-term liquidity and operating needs which were mainly generated through cash operations. Also, a portion of the company's cash was held offshore by foreign subsidiaries. Hugo boss usually assesses its cash requirements and does not expect a tax restriction on repatriation of cash held outside the borders of the United States which may have any material effect on the overall liquidity.

The company has been able to utilize short and long-term debt to fund discretionary items such as share repurchasing and acquisitions. Hugo Boss has strong short-term and long-term debt ratings which have enabled it to refinance its debts as soon as they become due at favorable rates in the bond market and commercial papers. The company also has an agreement with a varied group of financial institutions that should provide sufficient credit funds to suffice short-term financial requirements, if there is a need.

Hugo Boss maintains a regular bank credit facility to support the continuous commercial paper programs. The present facility is an $11.0 billion facility that is split between a $7.0 billion 5-years facility and a $4.0 billion one-year facility expiring on August 2018 and August 2014 respectively. The one-year facility can be prolonged for a certain period as specified in and by the terms of the agreement. By June 2013, the facilities had been undrawn and the management anticipated that they would remain undrawn for the future.

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The credit rating did not have a cross rating trigger or the material adverse events clauses except at the time of signing. In addition to the credit facilities, the company has an automatic effective registration statement on Form-3 that is filed with the SEC and available for registered offering for short-term and long-term debt securities.

Financial position

Hugo boss is currently experiencing an expanding market growth in the United States, but a relatively lower market share in China. The company had expected a slow market start in 2013, but it had reported a 10% increase in sales above the expected earnings. The structure of the company's financial position continued to improve in the 2013 fiscal year. The rise in assets can only be essentially attributed to higher-quality property, plants, and equipment due to an increase in capital expenditure. However, the share of the financial liabilities slightly declined in 2013, but the share equity increased due to the positive business performance (Davey et al., 2013).

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Burberry is a British fashion house company that distributes clothing and fashion accessories as well as licensed fragrances. Its distinct tartan pattern has become the most widely copied trademark which was designed by the founder. The group has branded stores and franchise in the world that sells through concessions of third party stores.


The credit risks arising from the financial assets comprise cash and short-term deposits in addition to certain derivative instruments. The group's exposure to credit risk arises from the default of the counterparty with the maximum exposure equivalent with the carrying values of those instruments. The group is managed by policies that limit the value of credit exposure to any banking and financial institution.

Burberry group financial risk management policy aims at ensuring that sufficient funds are maintained to meet any unpredictable needs and close out any market positions. Due to the dynamic characteristics of the business, the group's treasury objective is to maintain flexible funding by ensuring that credit lines are available. All short-term trade payables, bank overdrafts, and borrowings mature within a year or less. The carrying value of the financial liabilities due in less than a year is equivalent to the contractual cash flow undiscounted (Moore & Birtwistle, 2013).

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In March 2013, the total financial liabilities of the group were $161.6 million as compared to $195.9 million in March 2012. The non-current financial liabilities were related to leasing liabilities, property-related accruals, retirement benefits obligations, derivatives, and erroneous lease provisions. The put option liability was subjected to a contractual capacity of $200 million.

Financial position

The Burberry brand remains similar to the luxury British fashion and the company's fortune has increased its influence by appealing to the tastes and fortunes of the Pacific Asian markets. Despite a slowdown in the company's growth in 212, the market had a clear contrast in sales of 2013 as compared to other brands. This was in response to the company's plans on focusing on its exclusive range of the luxury fashion spectrum. The company and the market share data provided detailed information on the financial position of Burberry Company. According to Michie and London Stock Exchange (2013), Burberrys sales were massive across all regions due to its focus on China, which paid big dividends.

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