ACC202 – Ratio Project . Show all calculations! Company name _____walgreen______
ID: 2443856 • Letter: A
Question
ACC202 – Ratio Project . Show all calculations!
Company name _____walgreen_________________ Source of financial info: _____________
Competitor name ___hyvee_________________ Source of financial info: ______________
Liquidity Ratios 2010 2009 Competitor 2010
Current ratio
Acid-test (quick) ratio
Activity/Efficiency Ratios 2010 2009 Competitor 2010
Inventory turnover
Accounts receivable turnover ratio
Number of days’ sales in receivables
Debt/Leverage Ratios 2010 2009 Competitor 2010
Debt Ratio
Times-interest-earned ratio
Profitability Ratios 2010 2009 Competitor 2010
Profit margin (Also called Rate of Return on net sales)
ROA = Rate of return on assets
ROE = Rate of return on common stockholder’s equity
EPS = Earnings per share
Market Ratios 2010 2009 Competitor 2010
P/E Ratio (use year-end close price)
Book Value per share
Explanation / Answer
Current Ratio
Provides an indication of the liquidity of the business by comparing the amount of current assets to current liabilities. A business's current assets generally consist of cash, marketable securities, accounts receivable, and inventories. Current liabilities include accounts payable, current maturities of long-term debt, accrued income taxes, and other accrued expenses that are due within one year. A current ratio significantly higher than the industry average could indicate the existence of redundant assets. Conversely, a current ratio significantly lower than the industry average could indicate a lack of liquidity.
? Formula
Current Assets
Current Liabilities
Acid Test or Quick Ratio
A measurement of the liquidity position of the business. The quick ratio compares the cash plus cash equivalents and accounts receivable to the current liabilities. The primary difference between the current ratio and the quick ratio is the quick ratio does not include inventory and prepaid expenses in the calculation. Consequently, a business's quick ratio will be lower than its current ratio. It is a stringent test of liquidity.
? Formula
Cash + Marketable Securities + Accounts Receivable
Current Liabilities
Activity/Efficiency ratios
Inventory turnover ratio
Stock turn over ratio and inventory turn over ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turn over ratio/Inventory turn over ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not
Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost
Or
Inventory Turnover Ratio = Net Sales / Inventory
Accounts Receivable Turnover
Indicates the liquidity of the company's receivables.
? Formula
Net Sales
Average Gross Receivables
Days' Sales in Receivables
Indicates the average time in days, that receivables are outstanding (DSO). It helps determine if a change in receivables is due to a change in sales, or to another factor such as a change in selling terms. An analyst might compare the days' sales in receivables with the company's credit terms as an indication of how efficiently the company manages its receivables.
? Formula
Gross Receivables
Annual Net Sales / 365
Debt/Leverage Ratios
Debt Ratio
Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm.
Debtors Turnover Ratio = Total Sales / Debtors
Times-interest-earned ratio
? Indicates a company's capacity to meet interest payments. Uses EBIT (Earnings Before Interest and Taxes)
? Formula
EBIT
Interest Expense
Profitability Ratios
Net Profit Margin (Return on Sales)
A measure of net income dollars generated by each dollar of sales.
? Formula
Net Income *
Net Sales
ROA = Rate of return on assets
Measures the company's ability to utilize its assets to create profits.
? Formula
Net Income *
(Beginning + Ending Total Assets) / 2
ROE = Rate of return on common stockholder’s equity
Measures the income earned on the shareholder's investment in the business.
? Formula
Net Income *
Equity
EPS = Earnings per share
The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased
Earnings per share (EPS) Ratio = (Net profit after tax Preference dividend) / No. of equity shares (common shares)
Market Ratios
A ratio used to find the value of a company by comparing the book value of a firm to its market value. Book value is calculated by looking at the firm's historical cost, or accounting value. Market value is determined in the stock market through its market capitalization.
Formula:
P/E Ratio (use year-end close price)
Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price.
Generally, higher the price earning ratio the better it is. If the P/E ratio falls, the management should look into the causes that have resulted into the fall of this ratio.
Price Earnings Ratio = Market price per equity share / Earnings per share
Book Value per share
? Book value per share is the net assets available to common stockholders divided by the shares outstanding, where net assets represent stockholders' equity less preferred stock. Book value per share tells what each share is worth per the books based on historical cost.
? Formula
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