Lush Retail Limited - Fresh Handmade Cosmetics

Lush Retail Limited - Fresh Handmade Cosmetics
Introduction
In the year 2017, Forbes listed Lush Retail Limited as the number one privately owned mid-sized company in America. Thirty thousand individuals were interviewed across America. Lush Retail Limited specializes in beauty and cosmetic products. Forbes categorized mid-size companies as ones that have between 1,000 and 5,000 employees (Lush Retailer Limited, 2022). Lush Retail Limited’s inventory includes handmade hair, body, bath, and skin care cosmetics. The company has 200 retail outlets in the United States of America and 931 stalls and mall shops in 49 countries worldwide (Lush Retailer Limited, 2022). Lush Retail Limited was founded in 1995 and is headquartered in Dorset, United Kingdom. The founders were Mark Constantine, Paul Greeves, Liz Weir, Rowena Bird, Mo Constantine, and Helen Ambrose. Lush Retail Limited should go public to allow for more significant expansion and overcome reliance on the United States chain stores. Moreover, the company has a consistent revenue flow justifying a customer's need for their products.
The cosmetics industry is a very competitive arena, including prominent players such as L’Oreal, Avon products, Sephora, and Bath and Body Works. Notably, all of the above big players are publicly traded; L’Oreal (OR) trading at $351, Avon (AVP) at $4.2, and Bath and Body Works (BBWI) at $31. Sephora is owned by Moet Hennessy Vuitton (LVMH), currently trading at $126. Despite Lush Limited being mid-sized and younger, the company has employed Porter’s generic strategy that emphasizes cost leadership, differentiation, and focus (Lush Retailer Limited, 2022). Lush creates unique handmade products, making it a more significant part of its success. Creation utilizing vegan recipes has been essential to its separation system. Herbal products are more worth compared to animal items. This is a component that has prompted many individuals to incline toward the Lush Limited products.
Financial Analysis
Working Capital Ratio
It is essential to identify the company's working capital ratio to decide on whether Lush Retail Limited should go public or remain private. Since 2018, Lush Retail Limited has maintained current assets of £115 million with total assets that include goodwill and property, plant, and equipment of £288.5 million. Current liabilities stand at £113.6 million (Craft Inc., 2022). The working capital ratio is 1.012, considering the working capital ratio formula of current assets/current liabilities (£115 million/£113.6 million) (Craft Inc., 2022). L’Oreal has a higher working capital ratio of 1.28 (Macrotrends LLC, 2022). While Lush Limited company is on the green with a 0.012 advantage, it is clear that an unexpected event such as another pandemic or an economic crisis can lead the company into trouble. Notably, the company may struggle to pay off its immediate expenses and running costs. The preferred working capital ratio would be more than 1.5 to allow for a better cushion. This can be achieved by going public, which will increase the current assets of the company, further allowing comfortable expansion.
Debt-to-Equity Ratio
The debt-to-equity ratio is key in establishing how much of lush’s operations are based on debt. It will also establish how much leverage Lush has over other companies in the industry. According to the company’s financial statement, the current debt-to-equity ratio is 0.2 (total debt/total investor equity). The total debt stands at £37.5 million, and the total investors' equity of £187.5 million (Craft Inc., 2022). This is a modest ratio that is acceptable as most companies that are privately owned are at 0.5 and above. L’Oreal's current debt-to-equity ratio is at a low of 0.02 (Macrotrends LLC, 2022). This shows that going public relieves the company of dependence on debt to operate. Based on this ratio, Lush Limited can survive as a private company without debt challenges.
Debt-to-Asset Ratio
Similarly, the debt-to-asset ratio is a key indicator that can further clarify the debt-to-equity ratio. Calculated by total debt/total assets, Lush Limited has a debt-to-asset ratio of 0.13 (Craft Inc., 2022). In comparison, L’Oréal's debt-to-asset ratio is at 0.0025. L’Oreal has had a 96% debt reduction since 2013 (Macrotrends LLC, 2022). The debt-to-asset ratio is vital in deciding the monetary risk of an organization. A proportion larger than one shows that a huge piece of resources is financed on debt and that the organization has a higher default risk. Subsequently, the lower the proportion, the more secure the organization becomes. In this instance, while Lush Limited has maintained a clean record, it shows an excellent opportunity to go public as investors will be interested in purchasing Lush Limited stock. The vision for Lush Retail Limited will be to expand and to get its products to as many customers as possible.
Equity Multiplier
The equity multiplier is a risk marker that gauges the piece of an organization's assets that is supported by the investor’s equity as opposed to debt. It is determined by partitioning an organization’s total assets value by its complete investors’ equity. The equity multiplier is measured on consideration of total assets/total investor’s equity. Lush Limited has total assets amounting to £288.5 million and a total investor's equity of £187.5 million, making an equity multiplier of 1.54 (Craft Inc., 2022). In comparison, has a 1...