STUDENT Alison Lauer
DUE Wednesday April 25, 2007
Ratios for Financial Statement Analysis – Staples, Inc.
Liquidity Analysis Ratios
** All numbers in the thousands
Current Ratio
Current Assets
Current Ratio
4,431,363 / 2,788,383
= 1.6
Current Liabilities
Quick Ratio
Quick Assets
Quick Ratio 4,431,363 / 1,919,714
= 0.9
Current Liabilities
Quick Assets = Current Assets - Inventories
Net Working Capital Ratio
Net Working Capital
Net Working Capital
1,642,980 / 4,431,363
Ratio = 0.4
Total Assets
Net Working Capital = Current Assets - Current Liabilities
Profitability Analysis Ratios
Return on Assets (ROA)
Net Income
Return on Assets
(ROA) = 12%
973,677 / 8,036,927
Average Total Assets
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Return on Equity (ROE)
Net Income
Return on Equity
973, 677 / 4,723,568
(ROE) = 20.6%
Average Stockholders' Equity
Average Stockholders' Equity
= (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2
Return on Common Equity (ROCE)
Net Income
Return on Common Equity
973,677 / 4,723,568
(ROCE) = 20.6%
Average Common Stockholders' Equity
Average Common Stockholders' Equity
= (Beginning Common Stockholders' Equity + Ending Common Stockholders'
Equity) / 2
Profit Margin
Net Income
Profit Margin
973,677 / 18,160,789 (post-tax)
=5.4% (post)
1,471,328 / 18,160,789 (pre-tax)
=8.1 % (pre)
Sales
Earnings Per Share (EPS)
Net Income
Earnings Per Share
973,677 /
(EPS) =
Weighted Average Number of Common Shares
Outstanding
Activity Analysis Ratios
Assets Turnover Ratio
Sales
Assets Turnover Ratio
18,160,789 / 8,036,927
= 2.26
Average Total Assets
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Accounts Receivable Turnover Ratio
Sales
Accounts Receivable Turnover
18,160,789 / 648,734.5
Ratio = 28.0
Average Accounts Receivable
Average Accounts Receivable
= (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Inventory Turnover Ratio
Cost of Goods Sold
Inventory Turnover
12,641,904 / 1,813,043
Ratio = 7.0
Average Inventories
Average Inventories = (Beginning Inventories + Ending Inventories) / 2
Capital Structure Analysis Ratios
Debt to Equity Ratio
Total Liabilities
Debt to Equity
Ratio = .67
3,375,600 / 5,021,665
Total Stockholders' Equity
Interest Coverage Ratio
Income Before Interest and Income Tax Expenses
Interest Coverage
Ratio = 31.8
1,519,138 / 47,810
Interest Expense
Income Before Interest and Income Tax Expenses
= Income Before Income Taxes + Interest Expense
Staples, Inc. Profile
Staples, Inc. created the office superstore concept in 1986 and today is the world's
largest office products company. They sell a wide range of office products, including
supplies, technology, furniture, and business services with close to 75,000 sales
associates. Headquartered outside of Boston, Staples operates approximately 1,900
office superstores and also serves its customers through mail order catalog, ecommerce and contract businesses.
Liquidity Analysis Ratios
By looking at the current ratio, we can see they have are in a good position, with over a
1 to 1 ratio proving that they have enough liquid assets to cover their liabilities. Through
the working capital ratio, it is clear that they are in a position to afford to pay their
short-term liabilities.
Profitability Analysis Ratios
The return on assets shows that they are in a strong position when it comes to
converting their earnings from capital into income. The profit margin verifies that they
are indeed profitable, but more than that, Staples has strong control over their costs.
Besides just measuring income, the profit margin shows that the profit in relation to
operation costs proving that they are competitive among other companies of this size in
the market.
Activity Analysis Ratios
The assets turnover ratio shows their ability to create short-term gains through sales,
while the accounts receivable turnover ratio secures Staples’ ability to extend credit
and collect efficiently. The high ratio proves that they receive a large amount of cash, or
their ability to collect receivables quickly and easily, which is important to their overall
financial status. The inventory turnover ratio proves that they are fairly effective when
turning goods into profit and replacing inventory. This number could be higher to show
strong sales, and should not be too low because that implies poor sales or excess
inventory.
Capital Structure Analysis Ratios
The debt to equity ratio shows that they are not aggressive when it comes to financing
their growth with debt. This ratio is low, less than one percent, showing that the large
amount of equity and debt Staples’ has is not being used towards adding more assets.
The interest coverage expense ratio is a high number, meaning that they have no
problem covering their interest expense on outstanding debt, proving they are
generating enough revenue to cover the expense.
Conclusion
Staples, Inc. is a very profitable company, with revenues close to $20 billion. They have
increased their return on equity ratio through increased stockholder’s equity in the fourth
quarter of 2006. Long-term debt was decreased greatly from the third to fourth quarter of
2006. The have almost equal amounts of long-term and current assets, keeping them
stable and liquid. While the company may not seem that liquid, they are definitely in a
strong financial position overall and are extremely competitive in the corporate market.