Institutional Affiliation:

Lululemon is a Canadian company that has its headquarters in Vancouver in the British Columbia islands. It is a publicly traded company that is listed in the Nasdaq exchange and went public in 2007 where it raised $327 million which was good for its capital requirements. The company deals in production of sports wear and it is famous for its leggings which are most popular among its products. In the recent past, the company purchased Mirror a startup that is also in the fitness industry for $500 million. This was after the company came up with an interactive mirror that would be used by fitness enthusiasts who preferred training at home as opposed to going to the gym during the covid-19 pandemic. The company has operations in North America, Europe and Asia with a total of 574 stores and online shopping platforms. At the end of 2021 financial year, the company generated total revenue of $6.26 billion and net income of $975.3 million. This report intends to look at the financial statements of the company and calculate both liquidity and profitability ratios of the company so as to ascertain its financial position in regard to profitability and its ability to meet financial obligations. It shall then make recommendations on what the management ought to do in order to improve the current state of the company.
The company has experienced tremendous growth in the last five consecutive years from 2017 to 2021. This is despite the global economy shrinking due to the advent of the covid-19 pandemic which led to a significant shrinking of the global economy. The growth of Lululemon is attributed to the fact that during the pandemic,health practitioners cautioned that people who were fit and had regular work out sessions were less prone to succumbing to the virus. This led to a surge in the demand for fitness products which are the main focus of Lululemon. This led to a significant growth in revenue for the company at a time when other industries such as hospitality and airlines suffered major setbacks due to travel restrictions. Other companies dealing in the fitness industry such as Under Armor also performed significantly well despite harsh economic times brought about by the covid-19 pandemic.

Financial performance of Lululemon and its strength shall be analyzed by using financial ratios. There are two sets of ratios that shall be used in order to find out the company’s performance and strength. The first is profitability ratios which include gross profit margin, operating profit margin, net profit margin, return on assets and return on equity. All these profitability ratios show how profitable a company is and they are mostly used by investors who are interested in investing in the company’s equity. They use the ratios to tell the possibility of the company remaining profitable in the foreseeable future and as such, they tend to tell whether the company’s stock is bound to remain strong or weak depending on the outcome of calculated ratios.
Liquidity ratios on the other hand include current ratio, quick ratio and cash ratio. These ratios show a company’s ability to meet its obligations. They are mainly used by creditors and other financial institutions such as banks and other lenders who use the information to check whether the company is in a position to meet its obligations before lending money to the company. The report shall first discuss the implications of the outcome of each profitability ratio then discuss liquidity ratios after which it shall discuss the calculated outcomes of each of this ratios for Lululemon.
Gross Profit Percentage
This ratio compares the sales revenue to gross profit. In other words, it shows how much a company is earning by considering the cost of production (Levi 2009). . Lululemon’s gross profit percentage is significantly high at 55.96% and it indicates that the company is fairing well. This is because high gross profit margin indicates that the company is highly efficient in its operations and it can easily meet its operating costs despite depreciation.
Operating profit percentage
This ratio is a percentage of sales before deduction of interest and taxes. Lululemon has an operating profit percentage of 18.63% which is quite impressive. This shows that it can pay interest on its debts or other fixed costs without straining. It also stands a better chance at surviving tough economic times such as those brought about by the covid-19 pandemic. This increases investors’ confidence in the future of the company making its stock attractive to investors.

Net profit percentage
This ratio describes the health of a company based on its net profit after all expenses including taxes and interest on obligations (Mehmonov 2019). The company’s net profit percentage is 13.38%. this implies that after deducting all expenses, Lululemon is 13.38% profitable. This makes it a lucrative investment.
Return on equity
This ratio is usually a percentage of the company’s net income in relation to the amount invested in it by shareholders (Choi 2003). Lululemon’s return on equity is 151.52%. This shows that it has the capability to generate more capital internally and as such it can avoid financing through debt. It is also seen as a reason to purchase the company’s stock since it is proving profitable.
Current ratio
The current ratio is the simplest to compute since it only requires dividing the current assets of a company by the current liabilities. A ratio greater less than 1.0 shows that the short term obligations of the company usually due in less than an year are greater its current assets (Antonio et al,. 2007). The current ratio of Lululemon is at 1.30 which shows that the company is able to meet its current and short term obligations.
Quick Ratio
This ratio is almost similar to the current ratio only that it considers a certain group of current assets which includes cash, marketable securities and accounts receivables. The quick ratio of Lululemon is 0.57 which implies that its current assets are not equal to its current liabilities. However, a reading of 0.57 is a sign that the company cannot be liquidated because of its short term obligations.
The company is operating in an attractive manner both in the eye of the investor and that of lenders. This makes its financing options either through equity or debt easier in case they wish to expand. The challenge however is to make decisions that make the company to remain that way in the foreseeable future and this would require long term decision making based on rational thinking such as mergers and acquisitions of start-ups with potential for growth.

This part of the report comprises of the calculation of financial ratios that would be used to guide the report.

Operating profit percentage
Operating Profit
——————— X 100

————- X 100 = 18.63%

Gross profit percentage
Gross Profit
——————— X 100

————- X 100 = 55.96%

Net profit percentage
Net Profit
——————— X 100

——————- X 100 = 13.38%

Return on equity

Profit for the period
————————————- X 100
Total equity

———–x 100 = 151.52%

Current ratio
Current assets
Current liabilities
1,150,517 = 1.30

Quick ratio
Current assets – inventory
Current liabilities
1,150,517 – 647,230 = 0.57
883, 178

Antonio, J., Jan, O. and Stephany, K., 2007. International Finance And Development. Zed Books.
Choi, F.D. ed., 2003. International Finance And Accounting Handbook. John Wiley & Sons.
Levi, M.D., 2009. International finance. Routledge.
Lululemon (2021) Lululemon Annual Report 2021. retrieved from annual
Mehmonov, S., 2019. Improving Methodology Of Internal Audit In The Budget Organisations. International Finance and Accounting, 2018(1), p.18.

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