Compute Safeway Debt Ratio Compared
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Refer to Safeway's most recent balance sheet. Review the 'liabilities and equity side' of the balance sheet.
(a) Short term liabilities (or debt) and long term liabilities
Find our from the balance sheet of the company the total of the short term liabilities (also called 'short term debt') and long term liabilities (also called 'long term debt')
(b) Equity
The market value of equity is by definition equal to the number of shares outstanding times the market price per share. Find out the number of shares outstanding and the recent price per share. Then multiply one by the other in order to find the market value of equity of your company. If you have a problem finding our the number of shares outstanding you may go to http://finance.google.com and insert the name of your company. The market value of equity of your company is what is called 'Mkt Cap' (that is, Market Capitalization) that is market capitalization. An alternative site is http://finance.yahoo.com where again you insert your company's name and get the market capitalization.
Once you have this information, prepare a paper with the following:
1. Compute the debt ratio of Safeway (total liabilities divided by the total liabilities plus equity) and the debt to equity ratio, (total liabilities divided by total equity). Also, show these two ratios for short-term liabilities only and for long-term liabilities only (instead of total liabilities use just short-term liabilities and long-term liabilities). Show all of your work and calculations.
2. Give your recommendation as to whether or not you consider these ratios to be too small or too large. Should Safeway increase its debt or take steps to pay off its debt?
3. Compute the debt to equity ratios to Sam's Club and Costco compared to Safeway. Which of these three companies has the highest debt to equity ratio, and why do you think it chose to have a relatively high ratio? Which of these three companies has the lowest debt to equity ratio, and why do you think it chose to have a relatively lower ratio?
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Solution Summary
The solution computes Safeway debt ratio. The short-term and long-term liabilities are determined for two ratios.
Solution Preview
The short term liability of the company includes $758.4 million current maturities of notes and debentures, $40.6 million of current obligations under capital leases, $2,448.5 million of accounts payable, $450.3 million of accrued salaries and wages, $107.2 million of deferred income taxes, and he $694.2 million of other accrued liabilities. So the total short term liability of the company is $4,499.2 millions.
The long term liability of the ...
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
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