Financial Analysis (1 pages)

timer Asked: Apr 3rd, 2017

Question Description

Pls answer the question 3.
(3) Based upon your calculations from the Vera Bradley spreadsheet (excel file that I attached), comment on the financial condition of Vera Bradley. Briefly analyze the company’s: sales growth, margins, profitability, liquidity, leverage and activity ratios. What is your overall assessment of Vera Bradley’s financial condition (Recommended page length: 1 to 2 pages).
You could see the example of Costco that I have attached to see how to analyze the financial of company through sales growth, margins, profitability, liquidity, leverage and activity ratios. Remember that you should analyze each of them (sales growth, margins, profitability, liquidity, leverage and activity ratios.) then give the comment for the financial condition of Vera Bradley.
Thank you.

Vera Bradley Financial Assignment Selected Financial Information, Fiscal 2011-2015 (US $ in Thousands, except where noted) Sales Sales (in millions) Sales Growth (% change) 2011 $366,057 $366.06 N/A 2012 $460,843 $460.84 25.89% 2013 $541,148 $541.15 17.43% 2014 $536,021 $536.02 -0.95% 2015 $508,990 $508.99 -5.04% Gross Profit Gross Margin $209,147 57.14% $257,623 55.90% $308,281 56.97% $295,432 55.12% $269,009 52.85% Operating Income Operating Margin $53,319 14.57% $96,171 20.87% $110,146 20.35% $94,251 17.58% $64,070 12.59% Net Income NI Growth (% change) $46,198 N/A $57,921 25.38% $68,870 18.90% $58,812 -14.60% $38,449 -34.62% $1.25 $1.43 $1.70 $1.45 $0.95 246,902 136,923 60,359 4.09 1.82 267,697 98,403 63,049 4.25 2.69 Total Debt Total Assets Total Shareholder Equity Debt/Asset Ratio Debt/Equity Ratio $77,780 $332,927 $255,147 23.36% 30.48% $92,813 $377,284 $284,471 24.60% 32.63% Sales Fixed Assets $536,021 $84,940 $508,990 $109,003 Total Asset Turnover Ratio 1.61 1.35 Fixed Asset Turnover Ratio 6.31 4.67 EPS Diluted ($ per share) Current Assets Inventories Current Liabilities Current Ratio Quick Ratio N/A = Not Applicable
1 COSTCO Financial Ratio Assignment (1) Costco is an American wholesale retailer who offers a wide selection of merchandise. In 2015 the membership only warehouse was ranked the second largest retailer in the United States. We are going to analyze their financial statements to understand the financial soundness of the giant retailer. The current assets in Costco balance sheet reflect the its short-term liquidity. Current liabilities on the other hand represent the bills the company will pay within the course of the year. Current liability and Assets can therefore effectively be used to determine the financial soundness of the Costco within the financial year. The consolidated income statement shows a positive growth in the sales of Costco. In 2013 the company had a net sale of $105.16 billion. However in the next financial year, 2014 the sales grew to $112.64 billion representing a growth of 7.12%. This increase in sales therefore paints the company in positive light since the higher the sales a company makes the more profits it generates to its shareholders. The gross margin ratio measures how profitable a company can sell its inventory which Costco ratio for 2013 is 12.56% and 12.59% for 2014, with that ratio shows us the barely increase of gross margin through two years. Despite a small percentage of increasing with 0.03% the company is making a reasonable profit on sales. The operating margin in the year 2013 was 2.90% and it decreased in the year 2014 to 2.86%. This is an implication that the Costco company was performing better financially in the year 2013 than it does in the year 2014 because in the previous year the revenue left after paying 2 for variables was higher than during 2014 as shown from the comparison of the operating margins in the two year. Profitability Ratios Return on Sales Return on Assets Return on Equity EPS Fully Diluted 1.94% 6.73% 18.52% 2% 6% 16% $4.63 $4.65 There was a decrease in return on assets ratio between the year 2013 and 2014 an implication that in the year 2014 Costco couldn’t generate net income from its assets as it did in the previous year. Therefore, Costco was more profitable in 2013 than 2014. Between the year 2013 and 2014, the Return on sales increase by 0.6% an implication that the company was performing efficiently in 2014 compared to 2013. Higher profits are generated from each unit sales made. This may indicate an increase in price per unit sales. The return on equity decreased significantly between 2013 and 2014 and indication that the company was decreasing its ability to generate profits without exceeding capital, shareholder’s capita; is not efficiently managed. The diluted EPS increased indicating that the company was performing better by making more profits from each share. The share value was increasing. Liquidity ratios 3 The ratios often measure the ability of the company to pay its debt obligations and also help show a company’s margin of safety. 2013 2014 Current Ratio 1.19 1.22 Quick ratio 0.60 0.63 Times Interest Earned 30.82 28.29 Current ration - The current ratio in the year 2014 is higher than the year 2013 and implication that Costco was performing better financially in 2014 than 2013 in terms of its ability to pay back its debts. The Costco is able to pay its financial obligations when they are due. The quick ratio in the year 2014 was higher compared to the year 2013 showing an increase by 0.3. This is an implication that the Costco was over-leveraged, sand struggling to maintain its financial stability or sales were growing slowly with bills being paid too quickly and slow in collecting receivables. In 2014, the company is performing better, not over-leveraged. The TIE of the Costco dropped from 30.82 to 28.29 between 2013 and the year 2014. However, the ratio is very high an implication that the company is generating enough cash for its operations and also its interest obligations. More earnings were available to meet the operating cost and also interest obligations of Costco in 2013 compared to 2014. Activity ratios The ratios measure the firm’s ability to convert the various accounts in the balance sheet to cash. 2013 2014 4 Fixed Assets Turnover 7.58 7.60 Total Assets Turnover 3.47 3.41 Inventory Turnover 11.65 11.64 The increase in the fixed assets turnover indicates that the Costco is managing its fixed assets well to generate sales in the year 2014 than it did in the year 2013. This is an implication that Costco had less money tied up to its fixed assets in the year 2014 compared to 2013 hence better performance in utilizing fixed assets. The decrease in assets turnover ratio indicates that the Costco had a low profit margin in 2013 than 2014. In the year 2014, the company generated more profits hence its high assets turnover. The decrease in inventory turnover ratio implies that Costco sales were not moving faster as they did in the year 2013. This may imply overstocking by the company buying too much stock since the sales were high in 2013 and expected a higher turnover in 2014 which did not occur. It may also imply an increase in prices hence a decrease in amount of sales while making it profitable. Leverage Ratios 2013 2014 Debt to Assets Ratio 63.64% 62.10% Debt to Equity Ratio 175% 163.88% The debt to assets ratio was high in 2013 compared to 2014 hence a slight decrease which may imply a decrease in degree of leverage and financial risk. This may be a result of low amount of sales due to increase in unit price and low inventory turnover. 5 The debt to equity ratio decreased between 2013 and the year 2014 an implication that the in 2013 the Costco company was using too much finances to increase its operations hence the high debt ratio which decrease in the year 2014. This indicates that the shareholder value would have been high in 2013 if the operations were increasing the earning but since it is not the case, then it performed better in 2014 than 2013. (2) From the ratios, Costco has a strong financial structure and it lead to their performing well financially as seen from liquidity ratio, and profitability ration. This is evidenced by the adequate liquidity especially in the short run which will enable it meet its financial obligations. Secondly, the company has a strong and consistent equity turnover. The financial ratios show the company is not in any risky financial position. Even though Costco has a slightly negative trend in terms of inventory turnover and payables, the company is still very sound and performs well. The analysis shows that the company will continue being around for a long time if it maintains or improves the current financial position. Conclusively, Costco’s financial structure and condition is better in 2014 than 2013 due to various reasons such as a new pricing policy which has increased profits even though sales are low.

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