Global Reports Offer Up Apples and Oranges
January 2, 2006,
NEW YORK — As the number of domestic textiles vendors continues to fall, Home Textiles Today decided to take its first in-depth look at reports from overseas producers to better understand their financial performances.
HTT took an in-depth look at five overseas vendors: Li & Fung of Hong Kong, Coteminas of Brazil, and Reliance, Abhishek and Wellspun of India. Only one of these companies, Li & Fung, has a balance sheet that roughly resembles that of U.S. publicly held companies. But despite some similarities, nowhere on the document is there a line item for “total assets.” U.S. balance sheets typically list assets and liabilities separately, and when liabilities are subtracted from assets, the remainder is the net worth of the company. The Li & Fung financial statement, instead of subtracting total liabilities from total assets, to determine net worth, subtracts current liabilities from current assets. The difference is this: current liabilities generally refer to a company’s obligations, which will be paid within the next month, such as rent and utilities. Non-current liabilities might include such obligations as revolving credit and mortgages.
Income statements were a little confusing, too. Three of the companies refer to “turnover” instead of sales or revenues, as firms do in the United States. It’s not an unusual reference, since many overseas companies use the term.
Abhishek may offer the most challenges to those used to reading American-style financial statements. The 2005 period lasted 15 months; the 2004 reporting period is for 12 months. SG&A (selling, general and administrative expense) includes personnel expenses, administrative and other unspecified “outgoings” and selling expenses.
Wellspun offered a “profit and loss account” statement. Listed as part of income was sales & services, other income and increase, or decrease, in stocks — leaving the reader to wonder if “stocks” referred somehow to a stock market or inventory on hand.
Li & Fung once again offered an income statement that resembled a U.S. document, reporting figures for cost of sales, SG&A and net profit.
Reliance took a different approach, having line items for “consumption of raw materials” and “staff cost.” Consumption may or may not be the equivalent of COGS (cost of goods sold) and staff cost doesn’t necessarily equate to SG&A.
Some numbers do appear to be roughly comparable, such as return on sales (turnover). For the year ended March, 2005, Reliance posted a return on sales of 11.5 percent, a number any American manufacturer of any stripe would envy; Abhishek reported 6 percent and Wellspun split the difference with 8.5 percent. The two companies with calendar year ends recorded a 3.2 percent profit margin (Li & Fung) and 13.4 percent (Coteminas).
HTT calculated results in U.S. dollars, based on U.S. Federal Reserve conversion rates for the 2004 and 2005 fiscal year ends. Going forward, HTT hopes to add more companies to its review of overseas firms, providing financial statements can be obtained and interpreted.