Question

Financial ratios for J Crew FY 2013-2014

2014 2013

Return on sales (%) 3.6% 4.2%

Return on assets (%) 2.4% 2.7%

Operating return on assets (%) 6.8% 7.2%

Return on equity (%) 7.4% 8.6%

Total assets turnover 0.66 0.64

COGS/Inventory 4.02 4.67

Total debt: Total assets 67.7% 68.7%

Total debt : Total equity 209.3% 219.4%

Current ratio 1.38 1.26

Quick ratio 0.54 0.45

Working capital $159.8 $85.8

Working Capital/Sales 6.6% 3.8%

(a)Analyse the ratios based on provided figures.

(b)What are the key things/issues can you find?

Answer 1

a:

• ROS= operating profit/net sales ; ROS is 3.6 ins 2014 whereas 4.2 in 2013 which is not good for the company
• ROA= net profit/total assets ; This is also reducing compared to 2013; higher the ratio better it is
• ROE(net profit/equity), operating result on asset etc are decreasing which is not favourable for the company
• Asset turnover( Sales/Asset) ratio is slightly better ; COGS/inventory is reducing which is not a good sign
• Total debt/asset and debt/equity ratio is decreasing which is good for the company
• Current ratio(current asset/current liability) ; quick ratio(current assset-inventory)/current liability are increasing significantly which will increases the liquidity of the company
• Working capital has also increased which is good considering liquidity
• Working capital/sales ratio is higher which means for a unit sale more working capital is required which does not signal a good operations of the company.

b:

There are poor performance by the company in 2014 compared to 2013 in the below aspect;

• ROS,ROA, operating ROA, ROE, cogs/inventory, working capital/sales ratio
• This signifies even though by leverage ratio the company has improved, but in operating ratios company is performing badly and this implies company need to improve in its operations.