Question

The following information relates to The Kroger Company for its 2015 and 2014 fiscal years, and Whole Foods Market, Inc. for its 2014 and 2013 fiscal years.

THE KROGER COMPANY Selected Financial Information (amounts in millions, except per share amounts)
	January 31, 2015	February 1, 2014
Total current assets	$ 8,911	$ 8,830
Merchandise inventory	8,178	7,951
Property and equipment, net of depreciation	17,912	16,893
Total assets	30,556	29,281
Total current liabilities	11,403	10,705
Total long-term liabilities	13,711	13,181
Total liabilities	25,114	23,886
Total shareholders’ equity	5,442	5,395
Revenues	108,465	98,375
Cost of goods sold	85,512	78,138
Gross profit	22,953	20,237
Operating income	3,137	2,725
Earnings from continuing operations before income tax expense	2,649	2,282
Income tax expense	902	751
Net earnings	1,747	1,531
Basic earnings per share	$ 1.75	$ 1.47

WHOLE FOODS MARKET, INC. Selected Financial Information (amounts in millions except per share data)
	September 28, 2014	September 29, 2013
Total current assets	$ 1,756	$ 1,980
Merchandise inventory	441	414
Property and equipment, net of depreciation	2,923	2,428
Total assets	5,744	5,538
Total current liabilities	1,257	1,088
Total long-term liabilities	674	572
Total liabilities	1,931	1,660
Total stockholders’ equity	3,813	3,878
Revenues	14,194	12,917
Cost of goods sold	9,150	8,288
Gross profit	5,044	4,629
Operating income	934	883
Earnings from continuing operations before income taxes	946	894
Income tax expense	367	343
Net earnings	579	551
Basic earnings per share	$ 1.57	$ 1.48

Required

1. Compute the following ratios for the companies’ 2014 fiscal years:

1. Current ratio.

2. Average days to sell inventory. (Use average inventory.)

3. Debt to assets ratio.

4. Return on investment. (Use average assets and use “earnings from continuing operations” rather than “net earnings.”)

5. Gross margin percentage.

6. Asset turnover. (Use average assets.)

7. Net margin. (Use “earnings from continuing operations” rather than “net earnings.”)

8. Plant assets to long-term debt ratio.

2. Which company appears to be more profitable? Explain your answer and identify which ratio(s) from Requirement a you used to reach your conclusion.

3. Which company appears to have the higher level of financial risk? Explain your answer and identify which ratio(s) from Requirement a you used to reach your conclusion.

4. Which company appears to be charging higher prices for its goods? Explain your answer and identify which ratio(s) from Requirement a you used to reach your conclusion.

5. Which company appears to be the more efficient at using its assets? Explain your answer and identify which ratio(s) from Requirement a you used to reach your conclusion.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Part a
Current Ratio	Current Assets/Current Liabilities
Kroger	8911/11403	0.78
Whole Foods	1756/1257	1.40
Average days to sell inventory	365/Inventory Turnover
Kroger	365/10.6	34	Days
Whole Foods	365/21.4	17	Days
Average Inventory
Kroger	(8178+7951)/2	$                                                                  8,064.50
Whole Foods	(441+414)/2	$                                                                     427.50
Inventory Turnover	Cost of Goods Sold/Avg Inventory
Kroger	85512/8064.5	10.60
Whole Foods	9150/427.5	21.40
Debt to Asset Ratio	Total Liabilities/Total Assets
Kroger	25114/30556	82.19%
Whole Foods	1931/5744	33.6%
Return on Investment	Earning from Cont Operation (As asked in que)/Average Asset
Kroger	2649/29918.5	8.9%
Whole Foods	946/5641	16.8%
Average Assets
Kroger	(30556+29281)/2	$                                                                  29,918.5
Whole Foods	(5744+5538)/2	$                                                                    5,641.0
Gross Margin Percentage	Gross Profit/Net Sales
Kroger	22953/108465	21.16%
Whole Foods	5044/14194	35.54%
Asset Turnover	Net Sales/Average Asset
Kroger	108465/29918.5	3.63
Whole Foods	14194/5641	2.52
Average Assets
Kroger	(30556+29281)/2	$                                                                  29,918.5
Whole Foods	(5744+5538)/2	$                                                                    5,641.0
Return on Sale	Earning from Cont Operation (As asked in que)/Net Sale
Kroger	2649/108465	2.4%
Whole Foods	946/14194	6.7%
Plant asset to Long term Debt	PPE/Long term Debt
Kroger	17912/13711	1.31
Whole Foods	2923/674	4.34
Part b
	Relevance	Better
Profitability	Return on Investment	Whole Food as having higher ratio outcome
	Return on Sale	Whole Food as having higher ratio outcome
Part c
	Relevance	Better
Financial Risk	Current Ratio	Whole Food
	Debt to Asset	Whole Food
	Plant asset to Long term Debt	Whole Food
Part d
	Relevance
Higher price	Gross Margin Percentage	Whole food is charging higher price as
		GM percentage is quite high
		(Assuming cost is computed using same method)
Part e
	Relevance	Better
Usage of Asset	Asset Turonver	Korger is better
	Average Day to Sell inventory	whole food