Question

Required information Ratio Analysis: Urban Outfitters Assessing how well a company's strategy is presently working involves evaluating the strategy from both a qualitative standpoint and a quantitative standpoint. The stronger a company's current overall performance, the less likely the need for radical strategy changes. The weaker a company's performance, the more its current strategy must be questioned. Table 4.1 provides a compilation of the financial ratios most commonly used to evaluate a company's financial performance and balance sheet strength. Assurance of Learning Exercise 1 provides you with an opportunity to assess Urban Outfitters's financial performance and balance sheet strength. This exercise requires the same calculations and overall assessment Using the formulas in Table 4.1 and Urban Outfitters's financial statement information presented below for Urban Outfitters, Inc., calculate the following ratios for Urban Outfitters for both 2016 and 2017. Be sure to report items (a) through (e) in percentages (.e., multiply your result x 100). Using the formulas in Table 41 and Urban Outfitters's financial statement starting on page 117, calculate the following measures of financial performance. Be sure to report items (a) through (e) in percentages (i.e., multiply your result x 100). a. Gross profit margin b. Operating profit margin c. Net profit margin d. Times-interest-earned (or coverage) ratio e. Return on stockholders' equity f. Return on assets g. Debt-to-equity ratio h. Days of inventory i. Inventory turnover ratio j. Average collection period

SHort answer

Answer 1

1. Gross Profit Margin = (Net Sales - Cost of Sales)/ Net Sales * 100

For 2016 Gross Profit Margin = (3545794 - 2301181)/3545794 = 35.10 %

For 2017 = (3445134 - 2243232 )/3445134 *100 = 34.89%

2. Operating Profit Margin

Operating Profit Margin = Operating Income/ Net Sales * 100

2016 Operating Profit Margin = 338527/3545794 * 100 = 9.55%

2017 = 353579 / 3445134 * 100 = 10.26%

3. Net Profit Margin

Net Profit / Net Sales * 100

2016 = 218120 / 3545794 * 100 = 6.15%

2017 = 224489 / 3445134 * 100 = 6.51 %

4. Times Interest Earned (or coverage) Ratio

Earning Before Interest and Tax/Interest Expense * 100

As no clear information about interest expense has not been given in the question so interest coverage ratio cannot be calculated.

5. Return on Shareholder's Equity

Net Income/ Shareholder's Equity * 100

2016 = 218120 / 1313084 * 100 = 16.6%

2017 = 224489 / 1137227 = 19.7%