FIN571 week3 Interpreting Financial Results

Topics: Financial ratios, Financial ratio, Balance sheet Pages: 6 (663 words) Published: April 20, 2015


Interpreting Financial Results
By Richard Stewart
FIN 571
March 10, 2015
Dale Hilken

Interpreting Financial Results

A company’s financial ratios play a significant part in determining how the business is doing on a financial basis (Parrino, Kidwell, Bates, 2012). The financial ratios will show the positive and negative financial status of the company. This paper will show the ratios for Family Dollar Stores and the stability over two years. Family Dollar Stores

Liquidity Ratios FY-12 FY-11

Current Ratio = Current Assets/Current Liabilities

1,768,170 1,533,844 = 1.7 1.5 1,065,657 1,017,055

Quick Ratio = Current Assets – Inventory/Current Liabilities

1,768,170 – 1,426,163 1,533,844 – 1,154,660 = 0.32 0.37 1,065,657 1,017,055

(Market Watch, 2014)

Liquidity ratios show the ability of a business to pay its short term obligations with its short term assets. The obligations must be paid without endangering the firm (Parrino, Kidwell, Bates, 2012). A higher liquidity shows that the company has a greater ability to make short term payments. Over two years Family Dollar shows a high liquidity ratio.

Efficiency Ratios

Inventory Turnover = Cost of Goods Sold/ Inventory
6,071,058 5,515,540 = 4.3 4.8 1,426,163 1,154,660

Accounts Receivable Turnover = Net Sales/ Accounts Receivable
9,331,005 8,547,835 = 13.8 12.5 674,202 685,063

Total Assets Turnover = Net Sales/Total Assets
FY-12 FY-11
9,331,005 8,547,835 = 2.8 2.9 3,373,065 2,996,205

(Market Watch, 2014)

Efficiency ratios show the ability of the business to use its assets to yield sales (Parrino, Kidwell, Bates, 2012). Possessing a swift inventory turnover shows a company is doing well at reducing the investments in its inventory (Parrino, Kidwell, Bates, 2012). Family Dollar had higher efficiency ratios between 2012 and 2011 showing that it is reducing inventory efficiently. Leverage Ratios

Total Debt Ratio = Total Debt/Total Assets

516,320 532,370 = .15 .18 3,373,065 2,996,205

(Market Watch, 2014)

Leverage ratios show if a business is using the fitting amount of debt financing (Parrino, Kidwell, Bates, 2012). Greater potential on return and greater bankruptcy risk are shown by higher ratios (Parrino, Kidwell, Bates, 2012). Family Dollar had a lower leverage ratio than it two competitors Dollar Tree and Dollar General in leverage ratio. Profitability Ratios

Gross Profit Margin = Net Sales – Cost of Goods Sold / Net Sales = .35 .35
9,331,005- 6,071,058 8,547,835 – 5,515,540
9,331,005 8,547,835

Net Profit Margin = Net Income/Net Sales

FY-12...

References: Market Watch. (2014). Family Dollar Stores. Retrieved from: http://www.marketwatch.com/investing/stock/hd/financials/balance-sheet
 Parrino, R. Kidwell, D. S., & Bates, T.W. (2012).  Fundamental of Corporate Finance
  (2nd ed.). Hoboken, NJ: John Wiley & Sons.
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