Financial Analysis Of Radioshack's Financial Stability

2182 WordsOct 13, 20149 Pages
Financial Analysis RadioShack’s financial stability has been a much debated topic in the electronic retail store industry. It has only recently realized that its old formula has not translated well into the current market. Part of its plan to become an active competing member in its industry relies on several factors within the company that can be analyzed, modified using a financial analysis. The financial ratios will let them identify their problem areas in comparison to their industry competitors. Ratio Analysis The return on capital employed (ROCE) ratio is a profitability ratio that measures how well profits are being generated based on capital employed. RadioShack’s ROCE dropped down to -34% in 2013 in comparison to 10% in 2012. For every dollar of capital employed, RadioShack is losing $0.34. The dramatic dip stems from 2012’s positive earnings before interest and taxes (EBIT) of 155.1 million dollars to 2013’s EBIT of -344 million dollars (see Appendix A for financial statement data). Capital employed is determined by subtracting current liabilities from total assets. In 2013, capital employed decreased by 79 million dollars. ROCE is used to view the long-term profitability of firms (“Financial Dictionary”). A more in-depth trend analysis done over several years would need to be done to determine the longevity of RadioShack. Return on sales (ROS) is determined by dividing operating profit, an interchangeable term with EBIT, by sales. RadioShack experienced a 14%
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