Ratio Analysis Of Supervalu

Ratio Analysis
In order to make inferences about a company’s financial condition, its operations, and its attractiveness as an investment we have analyzed financial ratios and compare ratios derived from SVU’s financial statements (see chart 1).
Gross Profit Margin
The gross profit margin ratio is used to show how much of each sales dollar is left after certain costs are covered (footnote). Looking at the table, Supervalu has increased its gross profit margin from 14.4% in 2015 to 14.7% in 2016 (in millions of dollars). This shows that net income for 2015 was 14.4 percent of sales and in 2016 increased to 14.7 percent of sales. Likewise, Walmart has increased its gross profit margin from 24.8% in 2014 to 25.1% in 2016 (in millions of dollars).

This is important because you make money when you sell inventory. The quicker you sell it the more money a company will make. Supervalu had an inventory turnover of 17.05 in 2014 and decreased to 14.80 in 2016(footnote: morning star key ratios). To determine this ratio we look at the relationship between sales and inventory. This means the Supervalu converted its inventory into sales 17.05 times, which on average was sold and replaced 17.05 times and increased to 14.80 in during this period. On the other hand, Walmart has a significantly lower turnover ratio averaging 8.08 over the last three years. Furthermore, looking at the day inventory shows that Walmart holds inventory longer before selling than SuperValu. There are many reasons why they hold inventory longer than the industry. This is not good for the company because they could be overstocking. Another problem could be ordering food during seasons when consumers are not purchasing in enough volume to beat expiration

With these pieces we can analyze the firm’s efficiency in expense control, asset consumption and use of debt, and see how each contributes to ROE. Looking at the table below, SuperValu, Inc. has a total asset turnover of 4.01 and a net profit margin of .01. The total assets to equity ratio for the firm is -9.91.
ROE = net profit margin X total asset turnover X total assets to equity ratio = -39.74% for FY 2016.
Looking at the tables below, we can see that Supervalu has a negative return on equity (ROE) for the last three years. The negative ROE for 2014 through 2016 is a result of its total assets to equity. A negative ROE occurs when a company or business has a financial loss or bland returns on an investment during a specific period of time. When a business 's return on equity is negative, it means its shareholders are losing, rather than gaining, value. A negative ROE is not something good for the company since most investors avoid placing their money in a company that fails to consistently deliver positive