The Financial Analysis of Ulta Beauty Inc:

A Financial Research Paper

Introduction

Beauty. It is a goal of many individuals regardless of gender, nationality, or religion, and that is the primary goal of this company. Founded in 1990 by Terri Hanson and Dick George, this publicly-traded company’s mission statement is “To be loved beauty destination of our guests and the most admired retailer by our Ulta Beauty associates, communities, partners and investors” (About Us, 2020). With 1200 stores in the United States, there is at least one store in every state, and it is the largest specialized beauty in the country (Company Details, 2020). With over 44 thousand employees currently headed by Chief Executive Officer Mary Dillon; this company has grown rapidly in a short period of time and continues to do so.

Ulta currently provides a wide variety of “specialized beauty” products. Meaning they do not only provide the highest quality of make-up and make-up related products and brands. They also provide hair and nail care products as well as perfume, aromatherapy, bath and body, and skincare products. Additionally, Ulta also has its own brand of these products; adding another level of competition with its competitors. Furthermore, Ulta owns its own subsidiary company that provides its own credit lines to its guest. This research paper will analyze several key financial components of this company.

Income statement Analysis

Although an official income statement for Ulta has yet to be published, in the last 12 months, the total revenue has shown that Ulta Beauty Inc’s revenue continues to increase, and it indicates the company’s overall financial success. This recent reporting shows the company has a total revenue that exceeds $7 billion. The total cost of revenue is reported at slightly over $4 billion. And even after expenses, the income statement still shows a net income of over $2.5 billion. To investors, stockholders, and current owners, this is means a successful financial standing, and they can continue to invest and place effort in the development of other business avenues.

In the past, Ulta Beauty Inc has shown that their business practices and subsidiaries continue to make them successful. This is proven by an increase in total revenue, cost, and net income in the last three years. While most businesses strive to keep the cost down this increase can be accounted for by things like the number of employees, operating cost, and inventory cost all increasing. While things like inventory cost cannot be controlled with additional sales comes additional work and possibly locations; which means additional salary expenses. As the saying goes “you have to spend money to make money.”

Financial statement analysis

The financial ratio takes a number from a financial statement and divides it by another number from the same statement. (John WIley and Sons, 2015) It can evaluate many different effects of a financial statement. In regard to Ulta Beauty Inc’s income statement, I used this method to calculate the overall profitability of the company. According to Yahoo Finance Net Income = 2,653,883,000, Operating expenses = 1,667,902,000. Subtracting expense from the net income comes to Operating revenue of 895,981,000. I then took the operating revenue and divided it by the net income. Coming to a financial ratio of 37.15% for profitability for the company.

Compared to an initial first look at the income statement that shows a great financial profit, the financial ratio assessment shows that there is room for improvement. Although the company is profiting when management looks at the profitability ratio shows that some changes need to be implemented to increase the overall profit.

Balance sheet Analysis

The balance statement for Ulta Beauty Inc. gives a detailed account of the company’s assets and liabilities. Similar to the income statement discussed earlier, the balance statement shows that the company is in good standing. From 2017 to 2018 assets rose more than 12%, however from 2018 to 2019 assets only increased by about 8 %. It does not sound like much; however; further research has shown that in recent years that it has been problematic for the company to sell products from some over their lesser-known vendors.

Current and non-current liabilities are accounted for at over 1.3 billion Liabilities have increased dramatically over the last few years. 2017 to 2018 there was an increase of less than 2%. From 2018 to 2019, conversely, shows an estimated 5% increase. Further analysis shows an increase in accounts payable but a decrease in taxes payable. Although total revenue was not reported in the balance sheet, it is clear to me that this company has been doing well and hope that these trends will continue. In addition, pick at least one appropriate (for this statement) ratio or financial in addition to what is provided and calculate that and explain it.  See the section on ratio analysis below for ideas.

The current ratio measures a company’s ability to pay current and long-term liabilities or accounts payable. For Ulta Beauty Inc. current assets= $1,914,861,000, current liabilities= $823,736,000. Current assets divided by current liabilities = 2.325. According to our reading, when a current ratio is more than one, it indicated that the company has enough current assets or liquidity to pay current liabilities if needed. So, although Ulta’s liabilities have increased, it is in a position to pay those liabilities.

Cash Flow Analysis

An analysis of the cash flow statement yields that income from operating activities has increased steadily over the years for Ulta Beauty Inc. With reporting at the beginning of 2020 already showing that trend will continue. From over a quarter of a billion to over 1.1 billion reported earlier this year. A majority of the cash from comes from either standard net income or other working capital; the forms of “other working capital” is not specified in this sheet.

In a sharp contrast cash flow from financing has shown a loss reported at almost ¾ billion dollars. Although Ulta Beauty has steadily reported a loss in this part of its cash flow statement. Most of the reported loss is due to Ulta repurchasing their common stock; which they have done increasingly over the years. There are several reasons as to why companies buy back their stock. There is no specified reason that I could find available to the public. Although the company does offer shares to their leadership as a part of a comprehensive salary package.

Cash flow from investments has fluctuated over the years. In 2019 they spent almost a half a billion dollars on all investment activities. Most of their acquisition was geared towards property and plant manufacturing. However, there was also a great decrease in the acquisition of regular investments. At the beginning of 2019, there were $400 million dollars spent on the purchase of investments at the beginning of 2020 this number increased by more than 70% currently Ulta beauty ink is only spending about $110 million in the purchasing of investments. This might be largely due to the COVID-19 outbreak.

Conclusion

With the exception of the current year overall, the cash flow as steadily increased throughout the years. “free flow cash” has been shown to increase by at least 20-30% over the last three years. However, predictions for this year might not hold due to the effects of COVID-19.

Works Cited

About Us. (2020). Retrieved from Ultra.com: https://www.ulta.com/company/about-us/

Company Details. (2020, January 21). Retrieved from D&B Hoovers: https://app-avention-com.db19.linccweb.org/company/f8792619-81e3-3297-8a17-fa05f2308da8#report/company_summary

John WIley and Sons . (2015). WIley Plus. Retrieved from Wileyplus.com: https://edugen.wileyplus.com/edugen/lti/main.uni

Yahoo. (2020). Yahoo Finance. Retrieved from Finance.yahoo.com: https://finance.yahoo.com/quote/ULTA/financials?p=ULTA