Explore BrainMass

Evaluating a Financial report - Kroger

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

I am looking for some help with putting together information on The Kroger Co.'s last two annual reports. I need to compute the eight ratios listed below for two consecutive years, discuss their
significance for management and compare them to industry averages.

Current Ratio
Quick Ratio
Inventory Turnover Ratio
Debt Ratio
Net Profit Margin Ratio
ROI
ROE
Price-to-Earnings Ratio (P/E) Ratio

I need help trying to analyze Kroger's working capital management. Explaining why the companyÂ's operating and cash cycles are currently optimized. Based on Kroger's last two financial statements, I need information on the long-term debt held by the corporation, maturity dates and yield to maturity.

I must list the types of stock issued by the company, the stocks' current selling price, and the 52-week average selling price, compute the weighted average cost of capital (WACC) for both years and discuss my findings.

My information must include a brief analysis that summarizes the data gathered and evaluates how Kroger compares to industry averages.
Should I buy this company's stock and why?

All I have for reference is :
http://www.annualreports.com where one of the other reports can be found and the attached. Kroger's 2007 Annual report is on page 74.

Solution Preview

Review Appendix A for details to include in your analysis of your chosen company's financial health.

? Prepare a word paper with AT LEAST 1,750 WORDS that includes performance ratios based on the company's last two annual reports and data available on the company's Web site.

Compute the eight ratios listed below for two consecutive years. Discuss their significance for management and compare them to industry averages.

? Current Ratio

? Quick Ratio

? Inventory Turnover Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Sales to Inventory)

? Debt Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Total Liabilities to Net Worth)

? Net Profit Margin Ratio (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Sales)

? ROI (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Assets)

? ROE (Note: on the Dunn and Bradstreet Web site this ratio is labeled Return on Net)

? Price-to-Earnings Ratio (P/E) Ratio

Analyze the company's working capital management. Explain why the company's operating and cash cycles are currently optimized. If you think they are not optimized,explain why.

Based on the company's financial statements, list the long-term debt held by the corporation, maturity dates and yield to maturity. List the types of stock issued by the company, the stocks' current selling price, and the 52-week average selling price.

o Compute the weighted average cost of capital (WACC) for both years and discuss your findings.

o Write a brief analysis that summarizes how your company compares to industry averages.

o Write your recommendations on whether as an investor you should buy this company's stock and why.
Appendix A

As students of finance and potential investors, you can estimate the financial health and profitability of a company using financial ratios and other industry tools. The tools and skills practiced in this course can be used to help you determine whether or not to invest money in a company. Research into the financial health of the company can help make the decision.

Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Accountants use the term financial position to describe an entity's financial resources and obligations at one point in time and the term results of operations to describe its financial activities during the year. Financial accounting information is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources.
Accountants summarize this information in a balance sheet, income statement, and statement of cash flows.
In financial analysis, we need qualitative information and try to read between the numbers. We have to ask all the right questions. Over the years, there are some ratios, which have become more popular and handy for rule of thumb analysis of financial statements. Our purpose in this note is not deride them but to advice the reader to use them properly to derive the correct results.
Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing and selling the same things. In other words it helps in inter firm and intra firm comparison.
(Pandey, ...

Solution Summary

This provides the steps for evaluating a Financial report - Kroger

\$2.19