Financial Ratio Analysis Report

Topics: Financial ratios, Balance sheet, Inventory Pages: 4 (1676 words) Published: March 8, 2006
The fiscal year 2004 was a relatively soft year for Barnes & Noble, Incorporated (B&N). Blockbuster nonfiction books that came out during the year may not have come from the company, but business remained strong. This is due to the million of books already in the market, including phenomenal fiction hits "The Da Vinci Code," "The Five People You Meet in Heaven," and "The Rule of Four," and thousands of new releases during the year. This claim was supported by the stable and strong figures embodied in the financial statements. The current ratio shows the company's ability to meet its currently maturing obligations, and serves as the primary test to measure one's liquidity position. B&N achieved a relatively strong liquidity position for the year 2004 at 1.48:1. Comparing it to the previous 2 years' figure of 1.52:1 and 1.53:1, the reduction is immaterial as the company still has enough ready resources to meet the current liabilities. Moreover, the current assets of discontinued operations increased the ratio of 2003 but were evened out by 2004. As a more stringent measure, the acid-test ratio of the company increased from .23:1 in 2003 to .46:1 in 2004. This vast improvement was attributable to the increased cash and receivables figures of US$253M and US$23M, respectively. The company not only improved its liquidity position but also in efficient utilization of fast-moving assets. This can be measured by using Activity Analysis ratios. One of these is the Accounts Receivable Turnover rate, which measures the average number of sale-collection cycles completed by the firm during the year. From the 2002 rate of 32.07 times, B&N enhanced their sales-collection efforts as proven by the rates 50.52 times and 77.60 times for the years 2003 and 2004 respectively. This development would find their ultimate effect in the increased sales figure of 11.47% and cash balance of 89.75%. As a result, collection time for sales also...
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