Comparing of Financial Statement for Similar Companies

Costco buys the majority of its merchandise directly from manufacturers for shipment either directly to Costco’s selling warehouses or to a consolidation point where various shipments are combined so as to minimize freight and handling costs. As a result, Costco eliminates many of the costs associated with multiple step distribution channels, which include purchasing from distributors as opposed to manufacturers, use of central receiving, storing and distributing warehouses, and storage of merchandise in locations off the sales floors. (1)

Be Our Guest’s balance sheet shows good signs of liquidity. Current Ratios for the past four years have remained above 1 proving that the company can handle its current liabilities. The current ratios are not extremely high (19941.27, 1995- 2.17, 1996- 1.15 and 1997- 1.16), but they can cover the current liabilities. It is important to note that the company is operating on a thin line because the current assets are barely covering the current liabilities. This is particularly unpleasant because we are dealing with a company operating in a seasonal business. It is a concern that the current ratio slightly eroded after 1995, and this is primarily due to Be Our Guest converting the bank line into long term debt in

It is a company with revenue of 52.5 M in 2005 with growth 3 % more than 2004.

I would worry that the firm might be decreasing the size of the operations. Also the firm has relied more on debt funding in the past but the incoming cash from taking on debt is going down over the last three years; however, payments for long term debt maintains. I wonder if they are struggling to obtain new debt and are reaching their limit.

Given the net sales in 2011 is still higher than 2010, we can assume the problem is most likely with its operating cost management. On the other hand, HH’s assets turnover rate dropping 0.30 from 2010 suggests an inefficiency of generating more sales with its increased assets in 2011.

Because they have faced cash shortage trouble. Their profitability has grown for 1993 ~ 1995 period, as we can see from their I/S (e.g. Sales and Net Income, etc.). However, as its business size grows, their A/R increased, which means that it is getting difficult to collect cash. On the other hand, A/P decreased for the same period, which means that the company paid cash for A/P, resulting in critical cash shortage. Furthermore, the A/P payment period is shorter than A/R collection periods, the company’s cash problem happens to be accelerated.

Overall, the Company appears to have slowing sales leading to growing inventory. The Company is increasing its debt burden to help cash flow since sales seem to be declining and inventory is growing. The profitability of the Company is declining steadily. Finally, if the Company finds itself in default of any loan covenants it will have to liquidate assets to pay its debts. Forced asset sales are never beneficial to the seller and would only exacerbate the already declining business trends of the Company.

A more tell tale sign is the quick ratio, or acid test, which has increased year after year. Debt to total assets has decreased over 5% since 2001, indicating less financing of current and long term debt and more company assets. Their cash debt coverage far surpasses the ideal 20%, indicating a high level of solvency with sufficient funds and assets to satisfy all debtors. Asset turnover has more or less maintained at right around 1.6, signifying a turnover rate of just less than 180 times per year.

This isn’t surprising, namely its market capitalization could be said high, also within the industry, but its income is lagging behind the main competitors.

Based on performance indicators for picking and order preparation, central distribution centers provide a more cost efficient option. Performance for picking and order preparation efficiency is specified by accurate, cost efficient, and timing on picking and preparing the orders. Picking and order preparation efficiency in a store is low and endures high labor costs per order (Agatz, 2009). With a higher volume demand, distribution centers provide a high picking efficiency, whereas stores provide only a low picking efficiency (Boyer & Hult, 2005).

The ROE is actually very good in comparison to other market participants especially in 2003, but dropped significantly in 2004. Likewise the ROA dropped. Due to the fact that there was no decline in sales, the constantly rising operating expenses can be seen as a reason.

These numbers come out to be lower than what is considered average for a normal manufacturing company in which a satisfactory current ratio is 2.0 while a good quick ratio is considered 1.5. However according to my research on the industry those numbers seem to be the norm.

Due to high investment in fixed asset the firm also need a high amount of debt in order to cover its expenses so the smooth run of business.

The long-term liquidity risk ratio such as LT debt/Equity, D/E, and Total Liabilities to Total Assets all show a decline from year 2005 due to the repayment of debts. The interest coverage ratio also shows a healthy number of 29.45 in comparison to the industrial average of 15.04 indicating a high ability to pay out its interest expense. Such a low relative risk is not surprising due to the nature of its business depending heavily in R&D development and large intangible assets.

Current ratio of Company X and Y is 1.80, and 2.55 respectively. This ratio presents the proportion of current assets to current liabilities. This ratio provided a measure of degree to which current assets cover current liabilities. Since both companies have excess of current assets over their current liabilities, they met basic requirement of safety margin against uncertainty in realization of current assets and funds flows. Generally, it is suggested that a firm should have neither a very high ratio nor a very low ratio. Very high ratio implies heavy investments in current assets reflecting under utilization of the resources. A very low ratio endangers the business in to risks of not being able to pay short term requirements. Normally, it is advocated to have the current ratio as 2:1 (Baker and Powell, 2009).