The Negative Rates Of CAGR Of Burberry Group Essay

Question:

Describe the negative rates of CAGR of Burberry Group imply that the company has been going under financial crisis for the last one year.

Answer:

Introduction:-

The investment decision-making process depends on the perspectives of the investors. The investors with short-term perspectives focus on the changes of stock market price and wish to invest in such stocks, which maintain a constant growth in the stock prices. The investors, with long-term perspectives, give more importance on the financial stability of the company and growth in the earnings per shares for investment related decisions (Oliveira 2015).

The stock prices of a company not only to be considered for short-term benefits. It also reflects the financial performance of a business organization. If any company earns high profit throughout a consecutive period of years, the stock price of the company will automatically rise to high level. Therefore, the market stock prices of any company can be considered for both the short-term and long-term benefits (Pearl and Rosenbaum 2013).

Company Background:-

Burberry Group Inc. is one of the leading luxury fashion houses of Britain, having its headquarters in London. The company mainly deals with outwears, perfumes, sunglasses, fashion accessories and cosmetics. It is one of the most highly valued brands in England. But, from last few periods, the company has been facing continuous downfall in the stock prices (Burberryplc.com, 2016).

Analysis of the Stock Price:-

Prior to the investment in any particular company, several aspects of the company should be critically analyzed. One of these aspects, is the stock price of the company. The stock price can be analyzed through various methods and techniques. CAGR is one of the widely used and simple methods to evaluate the financial performance of the company by its stock price (Kaplan and Atkinson 2015).

CAGR Method:-

The Compound Annual Growth Rate (CAGR) Model is applied to evaluate the growth of an organization over several periods by analyzing the changes in its stock prices. In this method, it is assumed the investment made in the stocks, use to compound over the periods of time (Bihari and Charde 2014). The calculation of the growth rate under the CAGR Model is as follows:-

CAGR = (EV/BV)1/n – 1

Where, EV = Ending value of the Investment or the stock price

BV = Beginning value of the Investment or the stock price

n = Number of periods (Bohman 2014)

Calculation of Burberry Group’s CAGR:-

The CAGR is used to be calculated for a specific period. For the purpose of better analysis, the investors should calculate the CAGR for different periods. To measure the growth rate of Burberry, the CAGR is calculated on the basis of the daily, quarterly and monthly the stock prices (Asos 2015). The calculation are shown in the following table:-

Daily

Quarterly

Monthly

Date

Close

Date

Close

Date

Close

5/27/2016

1097

5/23/2016

1097

5/3/2016

1097

5/26/2016

1082

5/16/2016

1095

4/1/2016

1189

5/25/2016

1086

5/9/2016

1139

3/1/2016

1365

5/24/2016

1099

5/3/2016

1195

2/1/2016

1320

5/23/2016

1093

4/25/2016

1189

1/4/2016

1195

5/20/2016

1095

4/18/2016

1248

12/1/2015

1195

5/19/2016

1079

4/11/2016

1273

11/2/2015

1245

5/18/2016

1112

4/4/2016

1296

10/1/2015

1328

5/17/2016

1143

3/28/2016

1327

9/1/2015

1368

5/16/2016

1143

3/21/2016

1320

8/3/2015

1411

5/13/2016

1139

3/14/2016

1354

7/1/2015

1609

5/12/2016

1140

3/7/2016

1378

6/1/2015

1571

5/11/2016

1169

3/1/2016

1380

5/29/2015

1695

5/10/2016

1184

5/9/2016

1176

5/6/2016

1195

5/5/2016

1178

5/4/2016

1179

5/3/2016

1185

EV

1097

EV

1097

EV

1097

BV

1185

BV

1380

BV

1695

n

19

n

13

n

13

CAGR

-0.41%

CAGR

-1.75%

CAGR

-3.29%

The graphical analysis of the above table is presented below:-

From the graph and the table, it is very clear that the CAGR of Burberry is in the declining mode. The daily rate of negative rate is lower and the monthly negative growth rate is the highest.

The changes in the stock market prices of Burberry Group for last one year are presented in the following chart:-


Conclusion:-

The negative rates of CAGR of Burberry Group imply that the company has been going under financial crisis for the last one year. Even the daily and quarterly CAGR rates are also negatives, which indicates that the company is not safe for short term investments also (Cruise 2012).

The stock price chart is indicating the same opinion. There was some improvement in prices 2-3 months back. But the growth was temporary as the prices has begun to fall again.

Therefore, it can be concluded from the above analysis, that the stock of Burberry should be strictly avoided for both short-term and long-term purpose.

Reference List:-

Asos, P.L.C., 2015. Equity Valuation (Doctoral dissertation, Universidade Cat?lica Portuguesa).

Bihari, S.C. and Charde, S.K., 2014. Intrinsic value of stocks: does market appreciate it? A study on three major private banks in India. Economics, Management and Financial Markets, 9(1), p.53.

Bohman, L.G., 2014. Methods and systems for comparing stocks. U.S. Patent 8,751,354

Burberryplc.com. (2016). About Burberry - Burberry Group plc.

Cruise, B., 2012. Economic Profitability and the Valuation of the Firm.Journal of Portfolio Management, 39(1), p.122

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Oliveira, P., 2015. Equity Valuation–OdontoPrev (Doctoral dissertation, Universidade Cat?lica Portuguesa)

Pearl, J. and Rosenbaum, J., 2013. Investment banking: valuation, leveraged buyouts, and mergers and acquisitions. John Wiley & Sons.

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