EVALUATING THE IMPACT OF DEPRECIATION ON THE PROFITABILITY: UK FASHION COMPANIES

Abstract

This study investigates the sophisticated dynamics of depreciation and its influence on the profitability of fashion companies in the United Kingdom. The UK's fashion industry has gained substantial growth recently and witnessed escalated sales in both new and used apparel. However, the fashion industry faces sustainability challenges due to the predominantly resulting rapid expansion of the fashion sector. In this competitive business environment, understanding the role of depreciation in shaping profitability becomes pivotal. Examining data collected from 17 UK-based fashion companies spanning the 2018 to 2022 period, this research precisely analyses how depreciation influences key financial indicators: return on assets, return on equity, and operational profit. The methodological approach involves the application of quantile regression analysis, and it offers an in-depth exploration of the relationship between depreciation and these vital financial variables. The findings of this study reveal that there is no statistically significant relationship between depreciation and return on equity or return on assets within the purview of UK fashion companies. However, a positive and statistically significant relationship exists between the depreciation and operating profit. This positive relationship potentially arises from various factors such as enhanced asset utilization, long-term investments, involvement in capital-intensive industries, sustained revenue growth, and improvements in asset quality. These findings have significant implications for stakeholders within the UK fashion industry. While depreciation may not strongly influence return on equity or return on assets, its correlation with operational profit reveals a nuanced aspect of financial performance within these companies.