This analysis examines Revlon's financial health based on the Income Statement and Balance Sheet provided in Exhibits 5 and 6 (p. 4-5). The data reveals a company with strong revenue growth but critical underlying weaknesses in profitability and solvency.
| Ratio Category & Name | 2013 | 2014 | Analysis |
|---|---|---|---|
| Profitability Ratios | |||
| Gross Profit Margin | 63.6% | 65.6% | Improving. Gross margin increased, indicating better control over cost of revenue or a more favorable product mix. |
| Net Profit Margin | -0.3% | 2.1% | Significant Turnaround. Revlon moved from a net loss of $5M to a net income of $41M, a positive sign of the new CEO's impact. |
| Return on Assets (ROA) | -0.2% | 2.1% | Improving. The company is now generating a positive return from its asset base, though the return is still very low for the industry. |
| Liquidity Ratios | |||
| Current Ratio | 1.44 | 1.66 | Improving. Liquidity has strengthened, indicating a better ability to cover short-term obligations. |
| Leverage Ratios | |||
| Debt-to-Equity | -4.38 | -4.02 | CRITICAL WEAKNESS. The ratio is negative because the company has negative equity (more liabilities than assets). This signifies insolvency and extreme financial risk. Although slightly better, it remains a critical issue. |
| Debt-to-Assets | 1.30 | 1.33 | CRITICAL WEAKNESS. A ratio greater than 1.0 means the company's assets are entirely financed by debt. This is an extremely precarious and unsustainable financial structure. |
Revlon's financial situation presents a paradox. The income statement shows a remarkable turnaround from a net loss to a $41 million profit in 2014 under the new CEO (Ex. 5). However, the balance sheet reveals a company in a state of technical insolvency, with liabilities far exceeding assets, resulting in a negative total equity of -$644 million (Ex. 6). While profitability and liquidity have improved, the extremely high leverage remains a critical, existential threat. The company's survival depends on sustaining profitability to rebuild its equity base.