Zara Essay

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Zara: Fast Fashion Case - Answers 1. The comparison between financial results of Inditex and H&M is very interesting according to their profitability. In order to analyze the profitability, net margin is calculated as net income divided by net operation revenue which is found as 10.5% and 9.6% for Inditex and H&M, respectively. Furthermore, it is found that cost of goods sold of Inditex is lower than H&M’s. Also, Inditex has less operation expenses than H&M’s. All of these imply that Inditex is able to operate with high net profit margins. When the capital efficiency is considered, Inditex is less efficient in terms of capital than H&M due to some indicators. First is that working capital of H&M is higher than Inditex’s which can calculated by extracting other non-current assets from total assets and found as 2129 for H&M and 2082 for Inditex. Other indicator is ROA which can be calculated by dividing net income to total assets. Return on assets (ROA) shows that the percentage how profitable a company’s assets are in generating revenue. ROAs of two apparel retailer is calculated and found as 18.78% for H&M and 13.05% for Inditex. Therefore, it can be concluded that H&M is more efficient at using its assets to generate earnings than Inditex. 2. Zara’s production take place in small batches with vertical integration into the manufacture of the most sensitive items. Both internal and external production flowed into Zara’s central distribution centers. Products were shipped directly from the central distribution center to well located, attractive stores twice a week, eliminating the need for warehouses and keeping inventories low. Vertical integration helped reduce the bullwhip effect. Zara was able to originate the design and have finished goods in stores much faster than average retailers. The short cycle time and
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