Financial Ratio Analysis Report

1667 Words7 Pages
The fiscal year 2004 was a relatively soft year for Barnes & Noble, Incorporated (B&N). Blockbuster nonfiction books that came out during the year may not have come from the company, but business remained strong. This is due to the million of books already in the market, including phenomenal fiction hits "The Da Vinci Code," "The Five People You Meet in Heaven," and "The Rule of Four," and thousands of new releases during the year. This claim was supported by the stable and strong figures embodied in the financial statements.
The current ratio shows the company 's ability to meet its currently maturing obligations, and serves as the primary test to measure one 's liquidity position. B&N achieved a
…show more content…
Just because B&N is primarily a merchandising company wherein cost of goods sold is a vital expenditure, the Gross Profit Margin rate is a significant ratio as this helps in evaluating inventory control measures. Moreover, gross profit is the very thing that recovers operating expenses. B&N maintains the rate at 30% with slight differences through the comparative years. The year 2004 figure of 30.51% is consistent with the company 's overall improvement.
The rate used to evaluate the efficiency of assets to generate income is called the Rate Earned on Average Assets, or Return on Investment (ROI). There was a slight decrease in 2004 from 2003, posing the figures 4.03% and 4.46%, respectively. Though it cannot be concluded in an instant that the company is inefficient in asset utilization, especially when the asset turnover rate is considered in the evaluation. As previously stated, income from discontinued operations which forms part of the net income affects the rate. Rate Earned on Average Equity likewise showed such a decrease, 13.38% in 2003 to 11.91% in 2004, or a difference of 1.47%. Investors need not panic for this immaterial reduction although it pays to investigate further, especially that the Retained Earnings balance decreased by US$138M or 26.44% from 2003 to 2004.
For the creditors, Capital Structure Analysis is employed in order to evaluate the overall capability of the company to pay its debt.
Get Access