Adore Beauty Company Analysis
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Introduction
This essay aims to analyse the financial statements of Adore Beauty Company to
ascertain whether the organisation meets the investment criteria of an investor or not. The
Australian online beauty retailer Adore Beauty will be assessed from profitability, asset
efficiency, liquidity, capital structure, and sustainability report to understand whether it is worth
investing in.
Overall Profitability Analysis
As for profitability, Adore Beauty has gained differing amounts of profit in the last three
years. The company uses a net profit margin where in 2021, the net profit margin was 5%, and it
slightly declined to 3.8% in 2022 and gradually improved to 4. 2% in 2023 (Tsiona, 2023). The
trend shows that despite facing specific issues in relation to profitability, the company was able
to edge up in the most recent fiscal year. The same could also be said for the Return on Equity
(ROE), which stood at 12% in the year 2021, 9% in the year 2022, and 10% in the year 2023,
depicting the aptitude of the company in terms of achieving profit out of the shareholders’ equity
(Tsiona, 2023).
Overall Asset Efficiency Analysis
From the nine asset turnover ratios established for Adore Beauty, the firm operates
optimally in asset management. Asset turnover ratio was registered at 1. 5% in 2021, 1. 4% in
2022, and has since increased to 1.6 in 2023 (Checcaglini, 2023). This implies that the company
has effectively been able to put its assets into sales. Again, this implies that the company has
efficiently used its assets to get Revenues. The inventory turnover ratio was 8 times in 2021,
lowered to 7 times in 2022, but then enhanced again to 8 times in 2023 (Checcaglini, 2023). This
testifies to the efficient working of the company's inventory during the previous year.
Overall Liquidity Analysis
Looking at the above Liquidity ratios, it can be seen that Adore Beauty has maintained
good liquidity over the years. The current ratio was 2.5 in 2021, 2.4 in 2022 and 2.7 in 2023,
thus establishing the company's solvency to meet its short-term obligations with its resources
(Widyani & Inggriantara, 2020). Thus, the quick ratio was 1. 8 in 2021, 1. 4 in 2022 and 1.7 in
2023, expressing the corporation's ability to satisfy its near-cash obligations without turning to
inventory.
Overall Capital Structure Analysis
Adore Beauty has been carrying out a good blend of its capital resources. It is seen that
the management adopts a conservative approach towards utilisation of debt; the ''debt to equity
ratio‘' was 0. 3 in 2021, 0. 35 in 2022 and 0.. 32 in 2023, respectively. This low level of debt as a
percentage of equity means the firm's finances are relatively safe and signifies robust equity (Birt
et al., 2023).
Sustainability Reporting
As seen from its sustainability reports, Adore Beauty seeks to be sustainable. The
company has taken Different measures in the past, including those related to emission reduction,
packaging and sourcing (Tsiona, 2023). These initiatives demonstrate the company’s willingness
to advance sustainability and commitment to corporate and environmental sustainability.
Limitations of Analysis
The evaluation is based on the financial data, which is only sometimes complete and
often can contain different discrepancies. Moreover, the influence of factors outside the
company's control, for instance, market conditions, economic fluctuations, and factors such as
changes in regulatory policies, are not adequately covered in this analysis (Birt et al., 2023).
Also, quantitative factors like management efficiency and brand power are not included.
Conclusion
To sum up, the analysis of the financial position of Adore Beauty indicates that the
company is financially secure with good profitability, effective use of assets, good liquidity, and
a sustainable capital structure. Leaving aside the questions of profitability, it is possible to note
that the company has shown signs of a tendency to recover and have stable financial
performance.
Recommendations
Altogether, it is suggested to the investor to invest in Adore Beauty due to the identified
opportunities. Notably, shares show stable financial performance, the company focuses on
environmental initiatives, and the possibility of financial risks is very low.
References
Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J., & Bond, D. (2023).CAccounting:
Business reporting for decision making. John Wiley & Sons.
Checcaglini, C. (2023). Bodies, beauty, brands: Professional, personal and everyday life
online.CFilm, Fashion & Consumption,C12(2), 199-215.
Tsiona, G. (2023).CApplied digital marketing strategies in the FMCG sectorC(Master's thesis,
Πανεπιστήμιο Πειραιώς).
Widyani, D., & Inggriantara, A. (2020). Marketing Strategy For Wckd, A New Local Cosmetic
Brand.CSouth East Asia Journal of Contemporary Business, Economics and Law,C23(1),
2289-1560.
Appendix
This financial analysis essay has been developed based on reference to Birt et al. (2023), the
Adore Beauty annual reports from 2021 to 2023 and company financial data obtained from the
Data analysis Database.
Profitability Ratios
Return on Equity (ROE)
Return on Assets (ROA)
Profit Margin
Gross Profit Margin
Asset Efficiency Ratios
Asset Turnover
Inventory Turnover
Liquidity Ratios
Current Ratio
Quick Ratio
Capital Structure Ratios
Debt to Equity Ratio
Horizontal Statement of Profit or Loss (Income Statement)
Horizontal Statement of Financial Position (Balance Sheet)
Vertical analysis statement of profit or loss and other comprehensive income for the half-
year ended 31 December 2023
Vertical analysis statement of financial position As at 31 December 2023
Vertical analysis statement of cash flows
