Ratio Analysis Financial ratios analysis is conducted by managers, creditors, and investors alike. Ratio analysis uses line items of financial statements, either alone in or conjunction, to help users understand and quantify raw data. Attachment 22 (page XXX) shows the formulas for the financial statement ratios; Attachment 23 (page XXX) presents many the financial ratios for both Dollar Tree and Dollar General. Dollar Tree: Looking at Attachment 23, Dollar Tree’s times-interest-earned (TIE) ratio should be noted. In the year-ended 2013, Dollar Tree had a TIE ratio of 350.61 times; which is a lot higher than its year-end 2015 ratio of 12.91 times. This can be explained by the fact that in the year-end 2013, Dollar Tree only had an interest …show more content…
In year-end 2013, Dollar Tree’s debt level grew by $498,500—a 185.75% change. This change, of course, caused the ratio to decline because the denominator of the formula (LT + ST debt) was now much larger than previously. Although Dollar Tree’s TIE ratio and free cash flow-to-debt ratios have declined from the year-end 2013 levels, Dollar Tree still looks to be very liquid and solvent. Dollar Tree’s current and quick ratios are in good position in the year-end 2015; a substantial improvement from year-end 2014 levels. When compared to the industry average, Dollar Tree’s current ratio of 2.31 is a lot better than the industry average of 0.94. Similarly, Dollar Tree’s quick ratio of 10 is a lot better than the industry average of 0.19. The TIE ratio is comparable to the industry average. Dollar General: Dollar General seems a lot more stable when compared to Dollar Tree. All of Dollar Genera’s ratios seem to be pretty consistent over time. It looks as if the TIE ratio has increased decently from the year-end 2013 levels (20.05 times compared to 12.71 times). This improvement may be attributed to the fact that Dollar General has been able to reduce its interest expense and increase its earnings before taxes over the time period
These ratios can be used to determine the most desirable company to grant a loan to between Wendy’s and Bob Evans. Wendy’s has a debt to assets ratio of 34.93% while Bob Evans is 43.68%. When it comes to debt to asset ratios, the company with the lower percentage has the lowest risk. Therefore, Wendy’s is more desirable than Bob Evans. In the area of debt to equity ratios, Wendy’s comes in at 84.31% while Bob Evans comes in at 118.71%. Like debt to assets, a low debt to equity ratio indicates less risk in a company. Again, Wendy’s is the less risky company. Finally, Wendy’s has a times interest earned ratio of 4.86 while Bob Evans owns a 3.78. Unlike the previous two ratios, times interest earned ratio is measured on a scale of 1 to 5. The closer the ratio is to 5, the less risky a company is. From the view of a banker, any ratio over 2.5 is an acceptable risk. Both companies are an acceptable risk, however, Wendy’s is once again more desirable. Based on these findings, Wendy’s is the better choice for banks to loan money to because of the lower level of
Creating uniqueness in your product or services typically involves creating distinct features, functionality, support, durability, and brand image that your customers value ((MindTools.com, 2015). Dollar Tree has uniform pricing of $1.00 or less in all of its stores and their locations are more convenient than that of the other discount retail stores such as Wal-Mart and Target. Because all of Dollar Tree’s products are priced at $1.00 or less, consumers find it easier to shop there and a more pleasant experience. Dollar Trees product assortment is different from the other discount retailers; they carry mostly private labels. The difference in product assortment combined with its pricing makes Dollar Tree less vulnerable to competition ((MindTools.com, 2015). Dollar Tree also attempts to differentiate their stores from others by making their stores easier to navigate through by being well organized and ensuring that their stores are well lit, clean and
Moody's Investors Service downgraded the retailer's long-term rating on debt to A2 from A1. The credit-rating company said the cut is due to Target's plan to use debt to help finance its $10 billion stock buyback. The company’s buyback represents more than 20 percent of outstanding shares and is expected to be completed within three years. The CEO believes the new program will maintain strong investment-grade debt ratings within a prudent range while allowing for substantial value to be returned to shareholders (www.investors.target.com). Moody's also called Target's free cash flow "thin," given the discount retailer's sizable capital spending for store expansion and its growing credit card operations (www.Marketwatch.com). The contribution from the company's credit card operations to third quarter earnings before taxes, net of the allocated interest expense, was $157 million, an increase of $23 million, or 17.1 percent, from the same period in 2006.
... likely to have more investors. After comparing the two firms as an investor I would invest in McDonalds. Based on McDonalds debt-to-assets ratio, I believe that McDonalds is actively using all its assets to maximize profits. As an investor McDonalds stock is also cheaper and gives a greater return. Wendys isn't
Looking at the individual ratios seen in exhibit 1 and comparing it to the industry average shown in exhibit 2 gives a sense of where this company stands. Current ratio and quick ratio are really low and have been decreasing. For 1995, the current ratio is 1.15:1, which is less than the industry average of 1.60:1, however to give a better sense of where this stands in the industry, as seen in exhibit 3, it is actually less than the average of the bottom 25% of the industry. The quick ratio is 0.61 is less than the industry is 0.90. Both these ratios serve to point out the lack of cash in this company. The cash flow has been decreasing because, it takes longer to get the money from customers, but the company still needs to pay for its purchases. Also, the company couldn’t go over the $400,000 loan limit, so they were forced to stretch their cash.
Analyzing Wal-Mart's annual report provides a positive outlook on Wal-Mart's financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of .90, and as of January 2008 it had a current ratio of .81. The quick ratio, which is defined as current assets minus inventory divided by current liabilities, is a measure of a company's ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of .25, and as of January 2008 it had a ratio of .21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores Inc. I believe the reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies have helped Wal-Mart hedge against inflationary pressures of the US dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7.68, and as of January 2008 it was 7.96. Wal-Mart has a lot of sales therefore it doesn’t have too much a problem of holding too much inventory. Its competitors have similar ratios though they don’t have as much sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for same quality, gives them the edge against its competition. As of the year 2007, Wal-Mart had a debt ratio of .58, and as of January 2008, it had a debt ratio of .59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a lot more assets than it does debt so Wal-Mart is not overleveraged.
Because Dollar General does not sell in bulk, they tailor their supply chain to focus on more frequent deliveries of goods to smaller stores. Although this creates some inefficiencies relative to their big box rivals who were able to ship larger truckloads to their stores, Dollar General benefits from a denser network of stores in many areas as they had more than twice as many US locations (11,061) as Wal-Mart (4,807) in 2013. Additionally, Dollar General owns all trailers moving to and from distribution centers, but subcontracts trucking [dollar general 10K]. This reduces their necessary capital investment, while retaining key distribution activities including control of the loading, unloading and delivery scheduling of products to both retail stores and distribution centers.
If we look at a number of key ratios for Clarkson Lumber, some clear issues emerge. Their Debt to Equity ratio is rising as a result of increased debt. In 1993 the Debt to Equity Ratio was .45. In 1994 it was .68 and in 1995 it was .73. This is a trend that Clarkson will have to take into consideration as he refinances his company.
Cash ratio – Big drop (from .35 to .087) in year 2002. In 2003 the rate grew from .087 to .460. The reason of drop in 2002 is decreased in Cash and big increase in Liabilities. The increase in 2003 occurs because of big increase in Cash and slight increase in Liabilities.
Another thing to consider is a statement made on CNNmoney.com in regards to Dollar Generals consistent store growth that they are only "cannibalizing sales at their other stores and eroding their profits"
Compared to Kodak, Hewlett-Packard and Sony are doing okay, but their ratios are both well above 1. In terms of ability to pay interest, Kodak’s only strong year was 2013. Their ratio has dipped in 2014, showing that they aren’t able to pay their interest or are struggling to pay it. Hewlett-Packard had no interest expense in their latest fiscal year, and Sony’s ratio is very strong. In 2012, Kodak’s free cash flow was in the negative (-$1,176,000).
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
This bar graph is showing that the trend is sporadic from year to year. This ratio shows the company’s total sales that are available for financing and supporting the company’s ongoing operations. Large ratios are needed to show that the company is in a better place to develop than its rivals. Kraft Food Group has room to grow in this
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Ratio analysis is an important and age-old technique of financial analysis. The following are some of the advantages of ratio analysis: