Albertson’s 2-Year Comparison

Ratios are important tools to be used when analyzing a company’s financial health. There are four categories of ratios that are broken down into thirteen ratios. Eight ratios will be used to analyze the financial statements of Albertson’s for the years 2003 and 2004.

The first category of ratio analysis is the liquidity ratio. In this category, we have calculated the current ratio. The current ratio for Albertson’s for 2003 is 1.2 and for 2004 is 1.05. Companies that have a ratio at or below 1.0 should be concerned, unless they have inventory that can be quickly converted to cash. www.beginnersinvest.about.com .

In the case of Albertson’s, this would be expected. This is also proven with the quick or acid-test ratio. For 2003, the ratio is .36 and or 2004 is .28. The Quick Test ratio does not apply to the handful of companies where inventory is almost immediately convertible into cash (such as McDonalds, Wal-Mart, etc.). www.beginnersinvest.about.com.

The second category of ratios is the asset utilization ratios. In this category, we have calculated the total asset turnover. For the year 2003, the ratio is 1.93 and for 2004 the ratio is 2.18. The higher the ratio, the better assets are being utilized. For every dollar in assets Albertson’s owns, the company sold $2.18 in goods. On the other hand, the higher the turnover rate, the lower the profit margin. www.beginnersinvest.about.com.

In an industry such as Albertson’s, the next ratio, the average collection period is expected to be low. Most of its business is in cash, so it is no surprise that for 2003 the average days for collections was seven and for 2004, it decreased to six days. One would think that the majority of this would be in the form of returned checks. This ratio should make management pleased with the result.

Another asset utilization ratio calculated is inventory turnover. For

References: NetMBA Business Knowledge Center. http://www.netmba.com/finance/financial/ratios/ http:// www.beginnersinvest.about.com