Asian Brand Strategy
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TABLE 2.4 Impact of brand performance on financial ratios Financial ratios24 Liquidity ratios
Current ratio Quick ratio
Activity ratios
Leverage ratios
Times interest earned
Results
Measure a firm’s ability to meet cash needs as they arise
The strong brand portfolio outperformed both benchmark groups in liquidity
Measure the liquidity of specific assets and the efficiency of managing assets
The strong brand portfolio outperformed the benchmark groups on only one indicator: the average collection period where they collected funds from their customers in approximately half the time
Measure the extent of a firm’s financing with debt relative to equity and its ability to cover interest and other fixed charges
There was significant difference between strong brand portfolio and the benchmark portfolio on the times interest earned ratio
Measure the overall performance of a firm and its Operating efficiency in profit margin managing assets, Net profit margin liabilities and equity
Profitability ratios Gross profit margin
The strong brand portfolio outperformed on all aspects. It also demonstrated greater return on equity
Return on equity Source: Adapted from Madden et al., 200225
Growing significance of intangible assets Today, corporations are not only trading factories, retail outlets, aircrafts and other types of tangible assets; increasingly they are trading intangibles, of which most are related to brands, brand equity and the financial value of those brands. A recent example is the Chinese computer manufacturer Lenovo’s acquisition of IBM’s PC division, announced in December 2004, for US$1.25 billion.26 Lenovo obviously bought tangible assets, high-quality product know-how, distribution networks and a strong customer base. But a significant part of the deal is unquestionably related to the brand value. The brand value of the deal itself is undisclosed. Table 2.3 illustrated that the IBM brand contributes 39 percent of the overall market capitalization of IBM. A fair estimate is that Lenovo paid US$488 million, or approximately 39