Running head: COMPARISON OF TWO COMPANIES 1

Comparison of Two Companies

Jose Sermeno

MLOS535 – Survey of Organizational Finance

Los Angeles Pacific University

Bradly E. Roh, Ph.D., DBA

16 December 2019
COMPARISON OF TWO COMPANIES 2

Comparison of Two Companies

We will be analyzing and reviewing the financial statements of two publicly-traded

companies, Coty Inc. and Revlon Inc. These two companies are similar based on that they are

both in the beauty industry. We will briefly discuss the overview of the two companies and the

business they are in, assess the financial statements, identify any similarities and differences

between the two companies financial statements, discuss the information in the cash flow

statements, identifying the primary sources and uses of cash for each company, identifying the

companies’ auditors, and based on our analysis of the two companies; we will address the level

of comfort we should have in investing our personal assets in this two companies.

Overview

Examining the two company’s history, Revlon has become one of the largest

cosmetic companies in the beauty industry. Going back to 1932, Charles and Joseph Revson

founded the company, with the help of CR Lachman. CR Lachman, who was a chemist, helped

the two brothers formulate their unique products to the world. The first product Revlon created

was the nail polish that was designed to come in more colors other than red. In the 1950s, Revlon

started designing its own lipstick color, better known as the “Fire and Ice” (“Our History,” n.d.).

The vision Revlon had was to aim to depict American women as glamorous and compelling,

even in average daily lives. During the 1960s, Revlon started to run a campaign called the

“American Look” advertising with United States models in order to bring the standard look to

the entire world. Revlon wanted to stray away from foreign styles and begin dominating in one

particular style the “American look” (“Our History,” n.d.).

COMPARISON OF TWO COMPANIES 3

The 1970s was a significant decade for Revlon as the company was the first beauty

company to feature an African American model in its advertising (“Our History,” n.d.). It was

also a time were a wave of feminism stormed through the United States, and Revlon aimed to

create an image of women’s progress and success. During this time, they developed the face and

eye makeup. Revlon constructed a fragrance known as “Charlie,” which became one of the top-

selling and sought-after products of the decade. In the 1980s, Revlon wanted to become one of

the tops of the line cosmetic brands, so it decided to move on from department stores. During the

1990s, Revlon created an iconic lipstick collection in which Halle Berry became the featuring

model for the iconic lipstick “Colorstay.” To this day, Revlon has partnered with countless

companies and projects with celebrities in which it has pushed itself to be the forefront of fashion

and trend. Revlon has earned trust among women consumers across all age groups, and its

products can be found anywhere from beauty salons to individual make-up bags and vanity

tables across the globe.

Let us analyze Coty Inc. to have a better understanding of the company. Coty Inc.

started in 1904, where they created a fragrance, which was the company’s first product. Coty Inc

has been a successful company throughout its years through deals and has become one of the

biggest cosmetics and perfume companies in the world. Throughout the years, the deals that Coty

Inc. has made have given them the ownership of perfume brands such as JLO, Calvin Klein, and

Marc Jacobs, among other famous fragrances. During the 1920s, Coty Inc. was established in

New York City by its founder Francois Coty. Coty originally created its first fragrance in 1904,

but during the 1920s, Coty Inc. created a fragrance, which was the first product as a company.

The company originated as a fragrance manufacturer but has ventured into producing beauty and
COMPARISON OF TWO COMPANIES 4

health products. Even though the company is based in the United States, most of its sales are

generated from Western Europe, such as France and Germany (“Coty, Inc.,” n.d.).

Similar to Revlon, Coty Inc. benefited from World War I as American soldiers came back

home, bringing the fragrances securing the popularity of the company. In 1925, Coty Inc. became

a publicly-traded company, and after Francois Coty’s death in 1934, a board of directors was

created. During the 1930s, Coty Inc. started to manufacture multiple items ranging from

perfumes to toilet soaps, expanding their empire. Due to Coty Inc. expanding its manufacturing

items, it increased its net income from $1.07 million to $4.05 million in a matter of five years.

Coty Inc. has been dominating all areas of the beauty industry, from fragrances to skin and body

care products. All of Coty’s products can be found in supermarkets, pharmacies, nail salons,

upscale and mid-tier department stores, etc. They can be bought everywhere; however, the

majority of the companies revenue still comes from other countries.

Coty Inc.’s Financial Analysis

After analyzing the financial statement of Coty Inc., it seems that they are having trouble

meeting their short-term demands. Coty Inc.'s total assets are at $17.665 billion, which is a

21.94% decrease of 2018 total assets at $22.63 billion. The company does not have much cash in

hand as it equals to $381 million; however, that is a 5.02% increase of 2018 total cash in hand,

which was $362 million (“COTY,” n.d.). Even though that Coty Inc. has a large number of

assets, the current assets do not surpass the current liabilities. It owes more than it currently

produces, with the current liabilities at $3.477 billion and the current assets being $3.273 billion.

When we divide the current assets with the current liabilities, we can find out that Coty Inc. has a

current ratio of 0.94, advising that the company does not have enough liquid assets to cover its
COMPARISON OF TWO COMPANIES 5

short-term liabilities. The quick ratio of the company is 0.61. This suggests that Coty Inc. has a

higher risk of financial distress. The currently ROA is at (19.33)%, and the current ROE is at

(61.56)%. The (ROA) Return on assets can be defined as an indicator of how profitable a

company is relative to its total assets — calculated by dividing a company's operating earnings

by its total assets. The (ROE) Return on equity can be defined as the amount of net income

returned as a percentage of shareholders equity. Return on equity measures a corporation's

profitability by revealing how much profit a company generates with the money shareholders

have invested.

Additionally, after analyzing the companies revenue and dividing it by the total assets, we

discover the assets ratio is 0.4896. The receivable ratio is at 7.45, and we can find the ratio by

dividing the net sales with the average accounts receivables. Therefore, the days' sale in

receivables is 56.92 for the given sales of $8648.50, current accounts receivables $1161.00, and

previous accounts receivables $1536.00. This means that Coty Inc. collects its credit sales

in 56.92 days, on average. Based on these results, Coty Inc. has no problem collecting from their

consumers. When we review Coty Inc.’s balance sheet, we can see that a big part of its funds

come from the accounts receivables and inventory. That indicates the assets are not sufficient

enough to cover the liabilities of the company. Coty Inc. has to be able to manage their assets

effectively in order to cover its debts and improve the company’s gross value.

The stock price of Coty Inc. currently stands at $11.08, which is an improvement from a

year ago, where it stood at $7.31 per share. Viewing the stock price, it seems that the investors

are losing confidence or do not feel that Coty Inc. is worth a high price or would generate a

favorable stock price. The highest stock price for Coty Inc. was $32.68, and that was back on

July 01, 2015. Viewing the earnings of any company is a crucial factor in determining if it is a
COMPARISON OF TWO COMPANIES 6

good company to invest in. Earnings determine a company’s stock price, and clearly, Coty Inc

has been struggling to generate profits to outweigh its debts. As earnings are a crucial determiner

on a stock price, so is supply. Supply can also affect the company’s stock price. As the market

consistently changes, the demands will change as well. New competitors will emerge to meet

those demands; Coty Inc. becomes less appealing to investors and other agencies. The price-to-

earnings ratio is at (5.04), which means that the company is losing money. Coty Inc. is falling in

financial distress and is not generating enough profit to cover its current liabilities. The liabilities

might have been acquired from working or investing in other companies.

Revlon Inc.’s Financial Analysis

After analyzing the 2018 financial statement, Revlon appears to be financially

stable to a certain extent. Revlon's total assets are at $3.016billion, which is a 1.31% decrease of

2017 total assets at $3.056 billion. Revlon’s cash in hand, inventory, and other assets are

sufficient to pay all short-term demands. Revlon funds appear to come from mostly the from

inventories at $523 million (“REV,” n.d.). It makes sense as Revlon is a beauty company, and all

the assets should be generated from its inventories. Revlon has a large number of assets that

surpass its current liabilities. Revlon's current assets are at $1.193 billion, and the current

liabilities are at $1.120 billion. When we divide the current assets with the current liabilities, we

can find out that Revlon has a current ratio of 1.07, advising that the company does have enough

liquid assets to cover its short-term liabilities. The quick ratio of the company is 0.63. This

suggests that Revlon has a higher risk of financial distress. The currently ROA is at (8.34)%, and

the current ROE is at 22.07%. The (ROA) Return on assets can be defined as an indicator of how

profitable a company is relative to its total assets — calculated by dividing a company's

COMPARISON OF TWO COMPANIES 7

operating earnings by its total assets. The (ROE) Return on equity can be defined as the amount

of net income returned as a percentage of shareholders equity. Return on equity measures a

corporation's profitability by revealing how much profit a company generates with the money

shareholders have invested.

Additionally, after analyzing the companies revenue and dividing it by the total assets, we

discover the assets ratio is 0.8501. The receivable ratio is at 5.86, and we can find the ratio by

dividing the net sales with the average accounts receivables. Therefore, the days' sale in

receivables is 62.33 for the given sales of $2565, current accounts receivables $431, and

previous accounts receivables $445. This means that Revlon collects its credit sales

in 62,33 days, on average. Based on these results, Revlon has no problem collecting from their

consumers. As Revlon has a large customer base, it must produce enough inventory to meet the

demand. Such as Coty Inc., Revlon manufactures numerous items that are distributed across the

world.

The stock price for Revlon currently stands at $22.34, which has been steady throughout

the year. The annual change of the company is (11.31)%; the stock price has decreased since last

year, closing at $25.19 per share. The highest stock price for Revlon was $560.60 and that was

back on April 21, 1998. Viewing the earnings of any company is a crucial factor in determining if

it is a good company to invest in. Earnings determine a company’s stock price, and clearly,

Revlon has been struggling to generate profits. As earnings are a crucial determiner on a stock

price, so is supply. Supply can also affect the company’s stock price. As the market consistently

changes, the demands will change as well. New competitors will emerge to meet those demands;

Revlon becomes less appealing to investors and other agencies. The price-to-earnings ratio is at
COMPARISON OF TWO COMPANIES 8

(5.57), which means that the company is losing money or not making money at all. However, it

is an improvement from the previous year where it was at (7.17).

Similarities and Differences

Let us start off by pointing out the obvious, Coty Inc. and Revlon, are both in the beauty

industry, which also means their financial statements are alike in the way they operate and

allocate their funds. As a company in the cosmetic world and retail in general, they both have to

keep up with supply and demand, which inquires them to have a massive inventory. If we look at

both of the company's financial statements, we see that the most significant asset is the inventory,

which makes sense because that is how both companies generate revenue. Coty’s Inc. has an

inventory of $1.153 billion, as Revlon has an inventory of $523 million. As we can tell, Coty Inc.

has a more substantial inventory. However, we have to make note that Coty Inc. is a large

company than Revlon, in which it manufactures and distributes different products than Revlon,

which indicates its more extensive inventory.

As stated earlier, Coty Inc. manufactures and distributes a much more variety of products

than Revlon, as Coty Inc. ranges from fragrances to bathroom essentials, while Revlon only

produces skincare and cosmetic products. Because Coty Inc. has more substantial products to

manufacture and distribute, it would make more sense why it has a higher amount of assets in its

inventory. Since Coty Inc. has to manufacture all its products, the company had to acquire

adequate machinery and equipment. Even with the equipment, Coty’s assets do not adequately

cover their short term liabilities.

Even though Revlon has a much lower inventory compared to Coty Inc., it appears that

Revlon is much more productive using its assets to cover its short-term liabilities. The difference
COMPARISON OF TWO COMPANIES 9

between Revlon and Coty Inc. is that Revlon does not allow itself to bury itself or borrow in

other terms, more than it is financially capable too. This is essential, and it benefits the company

dearly. However, if we compare the price-earnings ratio, Coty Inc. is much more positive than

Revlon, and investors tend to be more interested in a much more positive ratio. However, we can

tell that Revlon is more cautious with its spending compared to Coty Inc. to ensure that the

profits the company generates can cover all their expenses and liabilities. If an investor is

interested in risks because, in the stock market, a higher risk is a higher reward or higher loss,

they should choose Coty Inc. It appears that Coty Inc. takes more risks than Revlon in borrowing

more than it can handle, which does not allow them to generate enough profit to pay off their

short-term liabilities.

Comparing both companies, they are quite similar overall, they invest in their inventory

to compete with supply and demand, but they are different on how they should manage their

finances. Coty Inc. seems to borrow more than it can handle, putting the company in financial

distress or bankruptcy. On the other hand, Revlon appears not to borrow more than it can handle

and appears to be spending its money wiser. As stated earlier, a higher risk will bring a higher

reward or a higher loss. As a result, Revlon does not take risks, as we can view their financial

statement they are making minimal profits, which explains why their stock price has been

steadily the same throughout the year.

Cash Flow Statement

When looking at the financial statement, we have to analyze the cash flow to have

a better understanding of how the money is being spent. As we look at Coty Inc.’s cash flow

statement, we can understand that it is portraying a favorable financial situation for the company.
COMPARISON OF TWO COMPANIES 10

Viewing the net operating cash flow in 2019, it significantly increased from 2018, with the

amounts being $639 million and $413 million, which is a 35% increase. This suggests that the

company is producing profits and is generating enough profits from sales. The net income loss is

incredibly high at ($3.769) billion. The depreciation has decreased to $736 million, just 1 million

from last year, still indicating that the company is not investing enough in its materials

efficiently. The net assets from acquisitions have also decreased to a more favorable amount of

($40.8) million, compared to ($278) million in 2018. As Coty Inc. allowed other companies to

invest in their assets, it able to achieve a more positive net investing cash flow for the company.

Coty Inc. was able to reduce its financing activities debt by $233 million in 2019, which means

that Coty Inc. put the majority of its profits into paying off their debts for this year.

As we look at Revlon, their net income continues to decrease from previous years

significantly. The net income decreased to ($294) million compared to ($183) million in 2017

and compared to ($21.9) million in 2016. This may suggest that Revlon’s revenue and sales are

not meeting with the depreciation and depletion of its products and equipment. Revlon’s

depreciation also increased to $208 million, which was stated earlier that the company is not

investing in the right areas. The working capital of the company has stayed about the same at

($143) million. This means that sales and revenue have hit a plateau and are not sufficient

enough to pay off the services used to sell the products. However, the change in accounts

receivables drastically increased to ($0.3) million, compared to ($9.9) million. This indicates that

consumers were buying more products, which generates more receivables for Revlon, but its still

spending more on its products than profits it obtains from them.

COMPARISON OF TWO COMPANIES 11

Accounting Policy

When we compare these two companies, we can tell that there is a difference in how they

conduct business and their accounting policy. As we view Revlon, we can gain a sense that its

intentions were for the fair value of its assets driven by estimated future cash flows. However,

Coty Inc., we can gain a sense that its intentions were for the fair values utilizing a probability-

adjusted cash flow method, according to extreme changes.

Conclusion

References

COTY Financial Statements - Coty Inc. Cl A - Wall Street Journal. (n.d.). Retrieved from

https://quotes.wsj.com/COTY/financials

Coty, Inc. (n.d.). Retrieved from http://www.fundinguniverse.com/company-histories/coty-inc-

history/

Our History. (n.d.). Retrieved from https://www.revloninc.com/our-company/our-history

REV Financial Statements - Revlon Inc. Cl A - Wall Street Journal. (n.d.). Retrieved from

https://quotes.wsj.com/REV/financials