Cover Page
Images Not Shown
Analysis of Financial Statements
Date submitted:
Introduction
“Financial ratio analysis begins with selection of a set of financial ratios that is large enough to describe all of the important characteristics of a firm under study, yet small enough to be manageable by the user”(Michael, 1983. p45). The objective of this essay is to perform liquidity, profitability and solvency ratio analysis ofBest Buy Inc for the year ended 28-Jan-2017 and compare the results with previous year (2016) to find out whether or not the company has performed better or worse over time.
Best Buy Inc. is a consumer electronics retailer based in United States. The company sells a wide range of electronic products from household electronic appliances to mobile phones, computers & tablets, cameras & camcorders, video games, movies & music and other ancillary products. Incorporated in 1966 as “Sound of Music Inc”, the company currently operates over 1,700 stores and employs over 125,000 people worldwide(10K report 2017, Sec.gov).
Thesis Statement
Liquidity and profitability of Best Buy Inc. is satisfactory but the level of debt is significantly high. The company should focus on reducing its debt (especially short-term debt) by using effective cash management strategies such as increasing receivable turnover, reducing expenditure on R&D and selling non-core business units.
Financial Statements Analysis
Liquidity ratios
Particulars
|
Ref.
|
2017
|
2016
|
Current ratio (Times)
|
(W-1)
|
1.48
|
1.43
|
Quick ratio (Times)
|
(W-2)
|
0.79
|
X.XX
|
XXX XXXXXXX XXXXX XX XXXX Buy Inc. XXX XXXX implies that the company maintains a cover of $1.48 against XXXXX $1 XX XXX current liability payable. XXXXX ratio shows XXXX XXXXXX XXXXXXX assets represent 79% XX total XXXXXXX liabilities. X XXXXX portion XX XXXXX XXXXXX XXX in the XXXX XX XXXXX-XXXX XXXXXXXXXXX XXX accounts XXXXXXXXXX XXXXX is XXXXXXXX i.e., either the XXXXXXX has XXXX debt or low XXXXXXXXXX XXXXXXXX – causing XXXXX-XXXX XXXX shortage XXX XXXXXXXX the XXXX for XXXX XXXXXXXXX to pay interest XX XXXX and settle creditors. This entails high XXXX because overdraft is often payable on XXXXXX XXX XX a XXXXXXX form of debt XX use in large XXXXXXX(XXXXXXX, XXXX). XXXXXXX, overall liquidity XXXXXXXX has XXXXXXXX XXXX the XXXX which indicates XXXXXXX’s strength in XXXXXXXXXX XXXX flows.
XXXXXXXX XXXXXX
Particulars
|
Ref.
|
XXXX
|
2016
|
XXXX XXXXX
|
(X-X)
|
14.93%
|
19.31%
|
XXXX to XXXXXX XXXXX
|
(X-4)
|
XXX.25%
|
208.XX%
|
XXXX XX XXXXXX ratio XX XXXXXXXXXXXX high which XXXXX be the XXXXXX XXX high short-XXXX investments (XX XXXXX XXXXX). XXXXXXX, XXXX XXXX debt XX a XXXXXXXXXX of XXXXX XXXXXX (XXXX XXXXX) XX XXX XXXXXXXXXXX. This further supports XXX XXXXXXXXXXX that company is XXXXXX XXXXXXX on short-XXXX XXXX. XXXXXXXXX XXXX increases XXXXXXX risk XXX eventually cause XXX XXXXXXX’s XXX XXXXX XX decline and XXXXXXXXX impact XXX stock price(XXXXXXX, 2007).XXXXXXX, solvency XXXXXXXX XXXX not XXXXXX to XX satisfactory although the XXXX has reduced XXXX the XXXX year which shows XXXX the XXXXXXX XX working XXXXXXX reducing XXX XXXX.
XXXXXXXXXXXXX XXXXXX
Particulars
|
XXX.
|
2017
|
2016
|
XXXXXX on equity (ROE)
|
(X-5)
|
XX.08%
|
XX.49%
|
XXXXXX on assets (ROA)
|
(W-6)
|
8.86%
|
X.64%
|
Return XX equity (ROE) XXX 2017 XXXXXXX XXXX XXX every $XXX XXXXXXXXX from XXXXX, Best Buy XXX XXXXX $26.XX XXXXXX for XXXXXX XXXXXXXXXXXX. Return XX XXXXXX (XXX) indicates that investment in XXXXXX earns X.86% XXXXXXXX. Despite XXXX level of XXXX, the company is providing attractive returns on investment. XXXX indicates effective XXXX XXXXXXX XXX XXXXXXXXX XXXXXXXXXX i.e., XXXXXX fixed XXXXX XXX XXX or they XXX well XXXXXXX. Overall profitability has improved as XXXXXXXX XX XXX XXXXXXXX XXXX XXXXX XXXXX mean increased profits for XXXXXX stockholders and an increase in XXXXXXXXXXX’s XXXXXX(Diana, XXXX).
Conclusion
XXXXXXXX XXXXXXXXX and XXXXXXXXXXXXX position XX good but high XXXXXX XX XXXX XX a concern XXXX requires XXXXXXXXX. The XXXXXXX XXX XXXXXXXX XXXX XXXXXXX XX XXXXXXXX up collection from receivables (XXXXX early payment discounts), XXXXXXXX XXXXXXXXXX in fixed XXXXXX, delaying XXXXXXXX to trade XXXXXXXXX and XXXXXXX non-core businesses to generate surplus cash which would improve XXXXXXXXX XXX reduce XXXXXXXXX XXXXX at XXX XXXX XXXX(Diana, 1993).
XXXXXXXXXX
XXXXXXX, XXXXXXX X., and X. Edward Ketz, “XXXXXXXXX XXXXX XXXXXXXX in Retail and XXXXXXXXXXXXX XXXXXXXXXXXXX.” (XXXXXX XXXX), XXXXXXXXX Management XXXXXXX, XXX. 12, XXX – XXXXXXXX X. XXXXXXX, (XXXX). “XXXXXXXX for XXXXXXXXX management”, 7th ed., McGraw XXXX PublishingXXXXXXXXXX, Diana R. (XXXX). “Corporate Financial Analysis in a Global XXXXXXXXXXX”, Xth ed. Mason, Ohio: Thomson/XXXXX-XXXXXXX publishingXXXX Buy XXX 10K XXXXXX XXX XXX year XXXXX XX-XXX-2017 , retrieved from(SEC.XXX)
XXXXXXXXXX
XXXXX Workings
|
Amount $ million
|
XXXXXXXXXXX
|
Year XXXXX
|
Year Ended
|
28-XXX-17
|
XX-Jan-XX
|
|
|
|
Liquidity ratios
|
|
|
(W-X) Current ratio
|
|
|
XXXXX current assets
|
10,XXX
|
9,XXX
|
Total XXXXXXX liabilities
|
7,XXX
|
X,XXX
|
Current ratio (XXXXX)
|
1.XX
|
1.XX
|
|
|
|
(X-2) XXXXX XXXXX
|
|
|
Current XXXXXX XXXX XXXXXXXXXXX
|
5,XXX
|
4,835
|
Current liabilities
|
7,122
|
X,XXX
|
XXXXX ratio (Times)
|
0.XX
|
0.XX
|
|
|
|
Solvency XXXXXX
|
|
|
(W-3) XXXX Ratio
|
|
|
XXXXX XXXX
|
2,XXX
|
X,611
|
XXXXX Assets
|
13,856
|
13,XXX
|
Debt XXXXX
|
14.93%
|
XX.31%
|
|
|
|
(X-X) Debt to Equity XXXXX
|
|
|
XXXXX XXXXXXXXXXX
|
X,147
|
X,141
|
Total shareholders’ XXXXXX
|
X,709
|
4,XXX
|
XXXX Ratio
|
194.25%
|
XXX.79%
|
|
|
|
Profitability XXXXXX
|
|
|
(X-5) XXXXXX XX equity (ROE)
|
|
|
Net XXXXXX XXXXX tax
|
X,228
|
XXX
|
Total shareholder's equity
|
4,709
|
4,378
|
XXXXXX on equity (%)
|
XX.08%
|
XX.49%
|
|
|
|
(W-X) Return XX XXXXXX (ROA)
|
|
|
XXX profit after XXX
|
X,XXX
|
XXX
|
Total assets
|
13,XXX
|
XX,XXX
|
Return on XXXXXX (%)
|
8.XX%
|
6.64%
|