2. - 1 -
Executive Summary
Company Overview
Estee Lauder, founded in 1946, is one of the leading prestige cosmetics companies in
worldwide cosmetic manufacturing and retailing industry. Its products can be divided into
skincare, haircare, make-up, fragrances and hygiene segments. Estee Lauder has maintained a
relatively stable growth and has acquired a lot of other brands since its inception. It owns 28
very well-known brands and has sales points in more than 135 countries. Each of their brands
is well differentiated in terms of quality, performance, lifestyle of its end users and prices.
Key Drivers
• Estee Lauder has a wide range of distribution channels which make sure its products can
reach their customer base in a timely fashion.
• They have strong presence in emerging markets where we expect to see rapid growth in
the cosmetic industry, especially the BRIC nations. With its growing global brand
recognition and points of sales, we believe Estee Lauder would be able to the tap the high
growth potential in the emerging economies and drive higher global sales.
• Due to increasing global internet connectivity and enhancement of mobile capabilities, we
believe Estee Lauder’s online sales will maintain a high growth rate which was 27% in
2015.
• Since consumers’ perception of the brands drive sales, Estee Lauder has maintained a high
advertising and marketing expense to maintain the prestige and high-quality image of its
products.
• Estee Lauder has been investing to reduce its manufacturing and operational expenses, to
drive efficiency in the firm and increase its operating cash flows. It has invested in three
major restructuring initiatives which we believe would help the company cut its operating
expenses.
Risks
• Due to Estee Lauder’s global marketplace they are susceptible to certain risks such as
foreign exchange risks, volatility in the price of crude oil and the economic fluctuations
of the emerging markets that fuel a lot of the recent sales growth.
• The global cosmetic manufacturing industry also presents its own risks as it has a very
low market concentration and tends to see a large amount of mergers and acquisitions both
of which can bring instability to profits.
• The industry also faces a quickly changing consumer preference which challenges the
innovation and R&D of Estee Lauder.
• Lastly, a high leverage ratio exposes them to a higher chance of financial distress in a
market downturn.
Key Assumptions
• 5 year sales growth rate of 7% and long term growth rate of 4%
• Gross Profit is 80% of sales, SG&A is 65% of sales and Operating Profit is 15% of sales
• WACC is 7.9%
3. - 2 -
Industry Overview
Cosmetics industry is considered a mature industry in most of the developed markets and it
includes skincare, haircare, make-up, fragrances, hygiene products and others. It is expected to
have a growth rate slightly larger than the general economy due to the emerging markets around
the world. The major players are L’Oréal, Unilever, Procter & Gamble, Estee Lauder, and
Shiseido (Appendix 1). Cosmetics industry has multiple product categories and its performance
varies geographically [1]. The industry, according to IBISWorld, “is also dynamic and exhibits
a high degree of innovation, particularly within luxury and prestige product lines.” [2]. When
looking at the industry value added forecasted by IBISWorld for the next 5 years up to 2021
the average annual growth rate is around 3.56% compared to the global GDP forecast of 2.7%
per year.
Revenue Outlook and Prediction:
Sources: L’Oréal 2015 Annual Report, Ibisworld.
COMPETITORS:
Estee Lauder faces tough competition from three major players on a global level: L’Oréal,
Unilever and Procter & Gamble. Some of the other important competitor brands include Revlon
& Avon.
L’Oréal, a French cosmetics company, like Estee Lauder, has a wide range of products and
brands like its own namesake L’Oréal, The Body Shop, Garnier, Maybelline, Lancôme, Kiehl's.
L’Oréal is a global leader in cosmetics industry. It is also known for its significant investment
in research & development every year. L’Oréal reported 12.1% growth in sales, in FY 2015.
Its sales were 25257 million euros in the same year. [1]
Unilever, a London based company and is one of the largest consumer goods companies in the
world. The personal care segment of the firm competes with Estee Lauder and it manufactures
industry-relevant skin care, hair care and deodorant products under major brands, such as Dove,
Suave, Pond's, Axe and Tresemme. Unilever’s personal care segment reported a sales growth
of 13.2%. Sales for the personal care segment were 20,074 million euros. [3]
The Procter & Gamble Company (P&G), a United States based company, covers segments
from Beauty to Baby, Family Care. The Company sells its products in approximately 180
countries. The firm reported annual sales of USD 65,299 million in FY 16. The beauty segment
was 18% of net sales which declined 9% over the last year. [4]
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2017
2018
2019
2020
2021
Growth Rate of The WorldwideCosmetics Market
7.37
10.95
19.80
21.66
29.94
- 10.00 20.00 30.00 40.00
Shiseido
Estee Lauder
Procter&Gamble
Unilever
L'Oreal
Main Worldwide Players
(2014 Sales in Billions U.S. Dollars)
4. - 3 -
Company Overview
Estee Lauder Companies is a world’s leading high quality cosmetic manufacturing and retailing
company. Its products include skincare, makeup, fragrance, and haircare. Estee Lauder owns
28 well-known brands and sells its products in more than 135 countries and territories. Estee
Lauder Companies has a headquarters located in Manhattan, New York City, 6 research and
development principal facilities over the world, 11 manufacturing factories in 5 countries, and
has 46,000 full-time employees worldwide. [5] For Fiscal 2016, Estee Lauder had net sales of
11.26 billion, and net earnings of 1.1 billion.
History
Founded in 1946 by Estee Lauder and her husband Joseph Lauder, Estee Lauder only carried
four products at first. Within twenty years, they expanded their products as well as
distribution range and sold products all over the United States and began to explore overseas
markets.
Brands and Products
Estee Lauder Companies own 28 brands in three main categories:15 brands in cosmetics, 10
brands in fragrance, and 3 brands in hair care. (Appendix 2)
The Skin Care and Makeup segments have the highest contributions to Estee Lauder's value.
Skin Care forms the priority category for the company, contributing ~50% of Estee Lauder's
stock value, and Makeup contributes around 40%. The Skin Care segment is also the most
profitable of all its beauty products.
Despite a global presence, about 40% of Estee Lauder's net sales come from the Americas, with
Europe, Middle East and Africa contributing 38%, and Asia-Pacific constituting the remaining
22%.
Fiscal 2015 Sales and Operating Income by Product Categories:
(Source: Estee Lauder Companies 2016 Annual Report)
MANAGEMENT OVERVIEW:
Estee Lauder is a family controlled company, with around 87% of the voting power held by the
Lauder family. It was founded in 1946 by Estée and Joseph Lauder as Estée Lauder Cosmetics.
William P. Lauder, the Executive Chairman of Estee Lauder, is the son of Leonard and Evelyn
42%
40%
13%
5%
Net Sales
Skin Care Makeup Fragrance Hair care
52%41%
5%
Operating Income
Skin Care Makeup Fragrance Hair care
5. - 4 -
Lauder and the grandson of Estee and Joseph Lauder. Fabrizio Freda is the President and Chief
Executive Officer of Estee Lauder. There are 15 members in its Board of Directors. [5]
(Appendix 3)
BUSINESS MODEL
We believe that Estee Lauder has a very strong business model based around a highly
diversified portfolio of premium brands. Their products are sold in over 150 countries and
territories under a number of very well-known brand names in cosmetics world. The brands are
well differentiated in terms of quality, performance, lifestyle of its end users and prices.
(Appendix 2) Each of them are distinctly positioned in global image, packaging, logos and
advertising.
Their products are considered prestige products and add tremendous value to the company due
to the consumer's view of their products. They are sold through limited distribution channels
mainly through upscale department stores, specialty multi-brand retailers, upscale perfumeries,
and duty-free shops at airports. The company believes that this endorses the luxury and prestige
image of their products.
Estee Lauder invests heavily in its research and development and works to constantly innovate
in its products, packaging and design. The R&D division has one of the best scientists and
maintains relationships with several medical and educational institutions.
The company manufactures its products primarily in the United States, Belgium, Switzerland,
the United Kingdom and Canada with major manufacturing facilities operate as “focus” plants
each manufacturing only one category of product (e.g., makeup) for all of the principal brands.
Their focus on innovation and efficiency continues to support its strong business model.
Estee Lauder has always evaluated the outside opportunities and has acquired a number of
firms of all sizes to increase its market share. Acquisitions of a number of high end niche brands
in the makeup and fragrances segments have helped them achieve double digit growth in those
segments. They have also made acquisitions in innovative luxury brands in make-up and skin
care segments especially in the Asia-Pacific regions.
The company has a couple of major restructuring activities going on. In 2016 it announced a
multi-year restructuring plan called “Leading Beauty Forward” with estimated charges of $600
million - $700 million until 2021. Estee Lauder has invested in other restructuring initiatives
as it moves to a vendor-owned, cloud-based model. By staying ahead of the curve in
manufacturing, innovation, consumer preferences, it continues be an important brand. [5]
Key Drivers
Intellectual Property Rights
Because innovation drives the cosmetics and the perfumes industry, companies seek to protect
such innovations through patents, commercialization - particularly in relation to natural
ingredients [7]. Estee Lauder has trademark rights in the manufacturing, marketing, distribution,
packaging and sale of its products both in the United States and in its principal countries. Estee
Lauder on an average applied for 565 patents between FY2012 and FY2016, spent $191.3
million on research and development in FY 16. We believe that Estee Lauder’s power on
6. - 5 -
innovation and intellectual property rights is one of the engines for its annual growth. These
help maintain the quality of its products as per its claims on safe ingredients, effectiveness and
mentioned shelf life and help company charge premium for its quality.
Distribution channel for its products
Estee Lauder has a wide range of distribution
channels including more than 30,000 points of sales
in over 150 countries. Its point of sales consists of
upscale department stores, specialty retailers, upscale
perfumeries and prestige salons and spas. Estee
Lauder also sells products from 16 of their brands
directly to consumers through their own e-commerce
websites. They have also opened single-brand,
freestanding stores. We believe that by adjusting the
distribution to fit the brands and markets, Estee
Lauder will be able to better capitalize on their niche
markets and see higher growth in their emerging
markets. [6]
Growth from emerging markets
Estee Lauder has strong presence in emerging
markets such as China, the Middle East,
Eastern Europe, Brazil, Russia, India, Mexico
and South Africa. We believe that their success
in the emerging markets will be a main sales
growth driver. According to Fabrizio Freda
their China business is experiencing strong
brand growth and momentum in retail sales. [8]
Other emerging markets saw a 20% rise with
the best performers being South Africa and
Brazil. This allowed Estee Lauder to launch
over 250 new niche brands around the world
last year and strengthen its distribution
channels. [9]
Fast-growing online and mobile offerings
In 2016, Estee Lauder exceeded $1 billion in its online
sales for the first time, about 27% increase from 2015.
With increased global internet connectivity, mobile
capabilities and increased presence in e- and m-
commerce platforms such as Sephora, Estee Lauder, we
believe, would see a much faster rate growth in sales.
Estee Lauder has produced lots of online instruction
videos to help consumers have a better buying
experience. [10]
0
50
100
150
200
FY2012 FY2013 FY2014 FY2015 FY2016
Annual Store Increase
Source: Bloomberg
0
200
400
600
800
1000
1200
FY12 FY13 FY14 FY15 FY16
Online Net Sales
Source: Estee Lauder 2016 Annual Report
Source: Estee Lauder 2013 and 2016 10-K
4000
6000
8000
10000
12000
2012 2013 2014 2015 2016
Emerging Markets Effect
Emerging markets Net Sales
7. - 6 -
Advertising, Merchandising, Sampling and Promotion Cost
We believe that Estee Lauder’s sales growth depends heavily on advertising. Estee Lauder’s
advertising programs are always supported by coordinated promotions, including sampling
programs, gifts and discounts with purchases. The annual reports of Estee Lauder show global
expenses of advertising, merchandising, sampling and promotion at $2,820.7 million, $2,771.5
million, $2,840.0 million and 2,541.0 million in fiscal 2016, 2015, 2014 and 2013, respectively,
a roughly one third of Estee lauder’s operating expenses for each year. From the following
graph, we can see the positive relationship between revenue and advertising cost. [11]
Some of the other important drivers of growth for Estee Lauder are included in Appendix 4.
Risk Analysis
ECONOMIC RISKS:
Fluctuations in emerging economies
The economic fluctuations in emerging economies is a risk for Estee Lauder given its global
presence. Although these markets drive sales for the company, the relatively unstable economic
environment in BRIC nations can have a negative impact on it. We found that Brazil’s economy
is declining, Russia has a high political risk and China’s economy has cooled down after a 15-
year boom. If the GDP of these countries cannot sustain the high growth rates seen in the past,
Estee Lauder could have a hard time maintaining its sales and earnings. [2]
Foreign exchange risk
We found that the foreign exchange risk is high for Estee Lauder, especially with the currencies
of emerging markets. Estee Lauder has more than 1100 outlets worldwide and in 2015, 58% of
the net sales were from overseas market [2]. This makes Estee Lauder susceptible to huge
foreign exchange risk. Furthermore, it huge foreign asset base could also be affected by the
exchange rate movements.
Source: numbers are from 2016 10-K page 85 and 2015 10-K page 88
8. - 7 -
Crude oil
The volatility of crude oil price poses an essential
risk in cosmetic industry. Crude oil is one of the most
important ingredients for the cosmetic products. It
affects Estee Lauder’s purchasing cost and profit
margins. It plays a part in the transportation of
products to the global marketplace and also in the
fact that many of the products contain petroleum
which is a byproduct of crude oil. Though recent low
prices in crude oil market is a good news to
cosmetics industry, we believe that the crude oil
market is historically volatile and presents great risk
for the company. [2]
COMPANY RISKS
Competition in the market place
Cosmetic industry faces a high competition and has low industry concentration. Major
competitors for Estee Lauder are L’Oréal, Unilever, Procter&Gamble and Shiseido in skin care,
makeup, fragrance, and hair care segments. According to IBISWorld’s estimate, the biggest
four companies will gather 27.2% of revenue shares which is a low industry concentration. [2]
We believe the highly competitive market creates the potential to lose market share.
Risk with Mergers and Acquisitions
Acquisition is one of Estee Lauder’s main strategies to expand and increase market share.
However, we believe it brings potential risks starting from identifying suitable candidates to
consummating these transactions on favorable terms. There are risks in integrating acquired
operations or products with the current businesses; in aligning new businesses including
businesses where Estee Lauder may have no experience. Other risks include financing risks of
its deals and country risks. [12]
Changes in consumer preference
Cosmetics industry as a whole faces risks to an ever changing consumer preferences and
demands. The key to success is to be proactive in gauging fluctuating tastes of consumers and
the trends in the markets. This would require spending a lot of time and resources researching
and surveying different sets of consumers. Since these drive the future strategies for Estee
Lauder, we see risks relating to the failure of capturing the right trends at the right time.
Limited Distribution channel
Although mentioned by the company in its annual report FY 16 that “We sell our prestige
products principally through limited distribution channels” and that its “strategy of pursuing
selective distribution strengthens our relationship with retailers”, we believe limiting its
distribution channels might hamper the accessibility of its products to some its new customers.
Another risk for the company is related to its leverage and is mentioned in Appendix 5.
Source: Ibisworld
9. - 8 -
Valuation
ASSUMPTIONS:
Growth Rate
We assume the company sales would grow at 7% per annum over the next five years driven
mainly by the growth in fragrances and make-up segments in the industry. Prestige cosmetics
industry has seen growth in make-up segment sales of 13%, in fragrances segment of 4%, in
online sales in double digits in 2016. These were the same growth rates experienced by Estee
Lauder. Our estimate is also in line with the growth estimated for prestige beauty industry. [13]
In the long-term i.e. from 2022, we assume Estee Lauder’s sales to grow on an average by 4%
per annum, slightly higher than the growth rate of the global economy. This is based on the
assumption that company expects to drive more growth from emerging economies.
Depreciation & Capital Expenditure
Since the company has been investing heavily in its restructuring programs as well in opening
new stores in the last four years, we assume the depreciation will grow at a 4-year historical
average growth rate of 2.9%.
Looking at the past capital investments as well as the plan of the company to invest at a steady
level in strengthening its distribution channels and opening up new stores, we assume the
capital expenditures to grow at 2% per annum on an average. This is also supported by the fact
that Estee Lauder is a mature company in the mature industry of prestige cosmetics.
Gross Profit, Selling General & Administration, Operating Profit
Based on the financial statements of last seven years, we have come up with the below estimate
of common size financial statements:
We assume Gross Profit at 80%, SG&A to be at 65% and Operating profit to be at 15%.
Estee Lauder estimates a saving of 300 million dollars in its operating expenses starting 2022
from its three major restructuring initiatives; which has been incorporated in our valuation.
Net Working Capital
Since the net working capital is strongly tied to the sales of a company and the fact that Estee
Lauder had stable growth in sales and net working capital over the last 7 years, we assume the
net working capital to be at 7% of sales.
Weighted average cost of capital
This is assumed to be at 7.9% as per the current estimate from Bloomberg.
Income Taxes
We have taken an average the effective tax rate for last three years at 30% to be the company
effective tax rate for next 5 years. We take marginal tax rate of 35% as the long term tax rate
for the stable growth period from 2022.
Sales 100%
Gross Expenses 20%
Gross Profit 80%
SG&A 65%
Operating profit 15%
Proforma Financial Statement
10. - 9 -
DISCOUNTED CASH FLOW:
Free Cash Flow of Firm
（in Million U.S.dollars) Actual Projected
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022
Cash Flow from Operating
activities $1,639.70 $1,692.05 $1,792.99 $1,900.50 $2,015.01 $2,137.00 $2,289.01
Minus Changes in NWC -$101.40 $386.45 $59.05 $63.18 $67.60 $72.34 $44.23
Minus Cap. Expenditures $525.30 $535.81 $546.52 $557.45 $568.60 $579.97 $591.57
FCFF $1,215.80 $769.79 $1,187.42 $1,279.87 $1,378.80 $1,484.69 $1,653.20
Terminal value $42,389.86
Total FCFF $769.79 $1,187.42 $1,279.87 $1,378.80 $43,874.54
Firm Value
Firm value $33,768.30
Plus Cash $914.10
Less debt $2,241.50
Equity value $32,440.90
Number of shares $336.30
Value per share $96.46
Current price $88.19
EPS (2010) $3.64
Detailed information for Free Cash Flow of Firm is shown in Appendix 7
Conclusion & Recommendation
We issue a BUY recommendation on Estee Lauder for its high brand value, innovation,
growing emerging markets presence, strong distribution channels and increased efficiency in
its operations. The company has managed to grow at CAGR of 5.6% over the last 10 years and
is projected to grow at 7% over the next five years. However, we do believe that company faces
certain economic risks such as foreign exchange risks, volatility in the price of crude oil, the
economic fluctuations of the emerging markets as well as risks from its recent increased
mergers in fragrances and segment. The intrinsic value of its stock as per our discounted cash
flow model should be $96.46. However, the company currently trades at a price of $88.07
(October 3, 2016). We believe Estee Lauder’s higher value comes from its huge growth
opportunities in the emerging markets and through their growing online and mobile offerings.
We also believe that the company would continue to maintain its high quality of products and
continue its large investments in innovation and advertising. These have helped Estee Lauder
gain a competitive advantage over its competitors in prestige cosmetics and create a few high-
end niche markets for itself.
11. - 10 -
Citation
[1] L’Oréal 2015 annual report
[2] Based on Global cosmetic industry report on IBISWorld, 2016
[3] Unilever 2016 Annual Report
[4] Procter & Gamble Company 2016 Annual Report
[5] Estee Lauder Companies 2016 Annual Report
[6] Estee Lauder Companies 2016 10K page 14
[7] Based on an article by the Union for Ethical Bio Trade: “Trends in patent activity in the
cosmetic and perfume sectors”
[8] Seeking Alpha. (Aug. 19, 2016) Estee Lauder Cos. (EL) Fabrizio Freda on Q4 2016 Results
- Earnings Call Transcript.
[9] Estee Lauder Companies 2016 annual report page 12
[10] Estee Lauder Companies 2016 annual report page 10
[11] Estee Lauder Companies 2016 annual report page 9
[12] Estee Lauder Companies 2016 annual report page 17
[13] 2016 report by Market research firm, NPD
[14] Capital IQ
12. - 11 -
Appendix 1
Breakdown of The Worldwide Cosmetics Market
Source: L’Oréal 2015 Annual Report
Skincare
36%
Haircare
23%
Make-up
17%
Fragrances
12%
Hygiene
Product
11%
Other
1%
PRODUCT CATEGORIES
Asia Pacific
36%
North America
24%
Western
Europe
20%
Latin America
11%
Eastern Europe
6%
Aferica, Middle
East
3%
GEOGRAPHIC SEGMENTS
13. - 12 -
Appendix 2
Major Brands under different segments
Cosmetics Fragrance Hair Care
AERIN
Bobbi Brown
By Kilian
Clinique
Darphin
Estée Lauder
Frederic Malle
GLAMGLOW
La Mer
Lab Series
M·A·C
Origins
Osiao
Prescriptives
Smashbox
Aramis
Ermenegildo Zegna
Jo Malone London
Kiton
Le Labo
Michael Kors
RODIN olio lusso
Tommy Hilfiger
Tom Ford
Tory Burch
Aveda
Bumble and bumble
Ojon
[Range of their brands from Annual report FY16]
14. - 13 -
Appendix 3
Board of Directors
Name Age Position Since
John Demsey 60 Executive Group President 2016
Fabrizio Freda 58 President, Chief Executive Officer and a Director 2009
Carl Haney 53 Executive Vice President, Global Research and Development,
Corporate Product Innovation, Package Development
2012
Leonard A.Lauder 83 Chairman Emeritus and a Director 2009
Ronald S. Lauder 72 Chairman of Clinique Laboratories, LLC 1995
William P. Lauder 56 Executive Chairman and a Director 2009
Sara E. Moss 69 Executive Vice President and General Counsel 2003
Michael O’Hare 48 Executive Vice President – Global Human Resources 2013
Gregory F. Polcer 61 Executive Vice President – Global Supply Chain 2008
Cedric Prouve 56 Group President – International 2003
Tracey T.Travis 54 Executive Vice President and Chief Financial Officer 2012
Alexandra C.
Trower
51 Executive Vice President – Global Communications 2008
Source: Estee Lauder 2016 Annual Report
15. - 14 -
Appendix 4
Other important value drivers for Estee Lauder:
Quality of the products
In cosmetics industry, it is very important that the quality of each of the products are maintained
as per its claims and its mentioned shelf life. Also, higher the quality of the products in terms
of its safe ingredients and effectiveness, supported by higher R&D, higher the premium a
company can charge on its products which would have direct impact on its brand name as well
as its sales.
Manufacturing processes and technological investment
It is crucial for a firm to control its manufacturing expenses by streamlining its processes and
sourcing less efficient activities to third party manufacturers, which increases efficiency and
supports innovation. Firms also try reduce costs by investing in technologies that improve
capacity and productivity. The more efficient a firm is in its production, the more profitable is
its business.
Relationship with Suppliers
Key raw materials used in the manufacture of the products in a cosmetics firm can be broadly
classified under essential oils, alcohols and specialty chemicals. The costs of raw materials are
driven by partnerships of the companies with their key suppliers. Since Estee Lauder is one of
biggest customers for the supplier firms, we believe the power of suppliers is low in the value
chain. Also, Estee Lauder procures the materials for all the plants at a global level which help
them control the processes and quality of its raw materials.
16. - 15 -
Appendix 5
Additional Risk Factor
High leverage ratio
The high leverage ratio increases company’s
financial distress which we believe is an unstable
factor to the business. Estee Lauder’s debt/equity
ratio is 62.50% which is much higher than
L’Oréal’s 7.70%. Leverage is return amplifier
which means it would exaggerate the number if
it has a positive return but make the company
expose to higher financial distress. Leverage is a
good strategy to take debt when the economy is
booming because it can exaggerate company’s
return. It can also be a burden to company when
in recession. [14]
Source: S&P Capital IQ
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2009 2010 2011 2012 2013 2014 2015 2016
Total Debt/Equity
Estee Lauder L'Oreal
17. - 16 -
Appendix 6
Key Ratio Analyses with the competitor L’Oréal
Profitability ratios
The return on assets of Estee Lauder was 12.5% last year. The performance is relatively strong
compared with its main competitor, L’Oréal, which the return on asset is 8%. Estee Lauder had
a slightly higher gross margin than L’Oréal. A higher profitability ratio shows Estee Lauder is
more efficient to use their assets to generate profits.
Liquidity Ratio
Both of Estee Lauder and L’Oréal met the lowest current ratio in last year. Estee Lauder’s 7-
year average quick ratio is higher than L’Oréal’s. The recent year quick ratio of Estee Lauder
was 0.99 and L’Oréal is 0.61. Estee Lauder has a strong ability to pay liabilities.
Leverage Ratio
Estee Lauder’s seven-year average debt/equity ratio is 52.92% which is much higher than
L’Oréal’s 5.52%. Estee Lauder used more leverage in its operations and acquisitions. It helps
Estee Lauder in profitability ratio but increase financial distress.
Efficiency Ratio
The most recent inventory turnover of Estee Lauder was 1.76 and L’Oréal was 3.04, Therefore,
Estee Lauder has more inventory than L’Oréal. The average account receivable turnover of
Estee Lauder in the last seven years was 9.3 and the number of L’Oréal was 7.05. The account
receivable turnover shows Estee Lauder is a much safer company than L’Oréal.
