As you can see from the spreadsheets presented there are several financial ratios interpreted. Retailers like Kroger typically focus on six of the ratios found on the spreadsheets. They are the current ratio, quick ratio, gross profit margin, inventory turnover, return on assets, and interest coverage ratio. For this …show more content…
This ratio tells investors and creditors how well a company is able to pay for their short-term commitments. Typically, in most industries a current ratio greater than one is desirable, but in retail, it is commonly accepted that the ratio can be much less than this standard. For instance, Kroger’s current ratio in 2018 is .78, whereas its competitors is .94. Kroger’s disclosures on their financial statements indicate the ability to pay for all short-term obligations, but falling behind their competitors by .16 may indicate future concerns.
Another important ratio is the quick ratio. It is measured by adding cash to accounts receivable then dividing them by current liabilities. Although this ratio is a similar measurement to the current ratio, the quick ratio gives investors and creditors a better tool to help them understand the liquidity of a company. Subsequently, the quick ratio and the current ratio are alike and therefore it is no surprise that Kroger also lagged in this field by .08. In 2018, Kroger had a quick ratio of .32 and its competitors had a ratio …show more content…
This ratio indicates a company’s ability to generate revenues and determine how well a company controls the costs of producing and delivering its products and services. The formula to compute the gross profit margin requires two steps. First, you find your net revenue and subtract the cost of goods sold, thus resulting in your gross profits. To conclude the equation and obtain the gross profit margin, the second step requires you to divide the gross profits by the net sales. The ratio ultimately determines how well companies are marking up their inventory. In essence, higher gross profit margins are preferable. Neither Kroger or its competitors had an advantage in this category as both had virtually identical 2% margins.
The following ratio discussed is the inventory turnover ratio. This ratio is an efficiency tool used to represent how effectively a company is managing their inventory. The ratio compares the cost of goods sold with average inventory for a period. This ratio is calculated by dividing net sales by the average inventory. Furthermore, it will determine the number of times a company has turned or sold its total average inventory during a specified period of