Kate Spade analysis of financial operations Research Paper

Kate Spade analysis of financial operations - Research Paper Example It is calculated by multiplying each source of finance by their relevant weight and then adding up the product of all these sources (Weighted Average Cost of Capital, 2015). Returns on investment of the company must be higher than the cost of capital. It increases the growth of the company and overall profitability. The Higher cost of capital results in loss of capital and decrease in growth over time. Return on investment of Kate Spade is 24.5% while its cost of capital is 14.48%. It means that the company is generating higher returns on capital than the cost required to generate that capital. It indicates that the future growth of the company is positive. †¢ Declining economic conditions and instability in economic markets in Asia and Europe can significantly affect the consumers’ confidence and may lead to a decline in consumer purchases of fashion and related products. Global economic condition after the recession of 2008 have resulted in unemployment and declining consumer confidence which in turn have led to a decline in consumer spending, specifically of those goods which represents discretionary purchases including fashion related products. Significant declines in revenue were experienced by the company and it is likely that consumption patterns and habits of consumers have changed as a result of recession, and this may continue to affect the revenues of the company for a foreseeable future. If the global economy will not recover and continue to decline further, it will have a negative impact on long-term revenues, operating margin and earnings in international segments of the company. †¢ Economic conditions have also forced the company to enter into a promotional environment, and both wholesale, and retail consumers are having pressure to increase discounts on sales. It had a negative impact on the company’s profitability. Additionally, international political