FINANCIAL STATEMENTS & RATIO ANALYSIS
Three Financial Statements are important to understand: 1) the Balance Sheet, 2) the
Income Statement, and 3) the Statement of Cash Flows.1
The financial statements for Staples, a fortune 500 company based in Framingham, MA,
are discussed below.
Balance Sheet - The balance sheet offers a snapshot of the company’s financial position.
Assets are what the company owns. These items are listed in order of liquidity. For
example cash is the most liquid asset - as of February 3, 2007 Staples could write checks
totaling just over 1 billion dollars. (Note: an example of a “cash equivalent” is Merrill
Lynch’s money market account).

Current Assets – must be converted to cash within a year.
o Examples: cash, short-term investments, accounts receivables, and
inventories.

Non-current Assets – everything with value but that is less liquid.
o Examples: property, plant and equipment (PPE), goodwill, and intangible
assets (i.e. intellectual property - items such as patents, trademarks,
copyrights, business methodologies).
Liabilities are what the company owes. These items are listed in the order they must be
paid.

Current liabilities – must be paid with a year. For example, when Staples
purchases supplies, it doesn’t immediately pay the suppliers.
o Examples: accounts payable (A/P), short-term debt, and the current
portion of long term debt.

Long-term Liabilities – due beyond a year’s time. For example, Staples has
over $300M in long-term notes due in 2012.
Equity is a residual claim. Retained earnings are part of equity; these are earnings that
have not been paid out as dividends. The stockholders’ equity listed on the balance sheet
is the book value of equity. As of February 3, 2007 Staples reports 720,528,000
(weighted-average) common shares outstanding.2
(Assets – Liabilities) = Equity
1
Note: the Statement of Retained Earnings is also important in that it connects the income statement and
the balance sheet. It can be useful for error checking during the forecasting process. (Source: Valucation,
4th edition by Koller, Goedhart, & Wessels, Chapter 8, p. 234)
2
Source: Company 10K p. C-21.
Financial Statements & Ratio Analysis
1
Figure 1: Staples (Ticker: SPLS) - Balance Sheet
Source: Company 10K
Financial Statements & Ratio Analysis
2
Income Statement – (a.k.a. “statement of income,” “statement of earnings,” “statement
of operations,” “profit and loss statement,” and “statement of operating results”) – The
income statement reflects the company’s performance over the past year.
Figure 2: Staples (Ticker: SPLS) - Income Statement
Source: Company 10K
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)3

EBITDA is calculated by taking operating profit and adding back depreciation
and amortization expenses.

Because it eliminates the effects of financing and accounting decisions, EBITDA
can provide a relatively good "apples-to-apples" comparison of the profitability
of companies across industries.

For example, EBITDA as a percent of sales (the higher the ratio, the higher the
profitability) can be used to find companies that are the most efficient operators
in an industry.

EBITDA is a good measure to use to evaluate the core profit trends, but cash is
king – by looking at changes in working capital, the "true" profitability and a
company's ability to continue operations are revealed.
3
www.investopedia.com/articles/analyst/020602.asp
Financial Statements & Ratio Analysis
3
Earnings, Before Interest and Taxes (EBIT)
EBIT = Revenue - Operating Expenses
Staples reports a 2007 EBIT of $1,519,138.
Net Income - A company’s “net income” is revenues minus costs. Synonyms for “net
income” include: profit, earnings, and bottom line.
EPS 
Net Income
$973, 677

 $1.35
Common shares outstanding 720,528
DPS 
Dividends paid to common stockholders $160,883

 $0.22
Common shares outstanding
720,528
DPS 
Dividends paid to common stockholders $160,883

 $0.22
Common shares outstanding
720,528
Staples 10K NOTE J Computation of Earnings per Common Share
2006
Numerator:
Net income
Denominator:
Weighted-average common shares outstanding
Effect of dilutive securities:
Employee stock options and restricted stock
Weighted-average shares assuming dilution
Basic earnings per common share
Diluted earnings per common share
Financial Statements & Ratio Analysis
$
$
$
973,677
2005
$
784,117
2004
$
664,575
720,528
731,622
741,878
19,150
739,678
1.35
1.32
18,794
750,416
1.07
1.04
20,328
762,206
0.90
0.87
$
$
$
$
4
Statement of Cash Flows - The statement of cash flows summaries the companies
operating, investing, and financing activities. It summarizes how the company spends
income (i.e. to pay dividends, increase inventory, finance accounts receivable, invest in
fixed assets, reduce debt, and buy back common stock).
Operating Activities include depreciation, adjustments to net income, changes in
accounts receivables, liabilities, and inventories.
Note: Net cash flow provided by operating activities is the most important figure in any
of the financial statements.
Investing Activities include sales of fixed assets and short-term financial investments.
Financing Activities include dividends paid, sale (or purchase) of stock, and debt.
Figure 3: Staples (Ticker: SPLS) - Cash Flow Statement
Source: Company 10K
Financial Statements & Ratio Analysis
5
Two charges reflect the estimated costs of assets that have been used over the past year.
These items reduce net income, but are not paid out in cash.
1. Depreciation is a charge that applies to tangible assets, such as plant and
equipment.
2. Amortization is a charge that applies to intangible assets, such as patents,
copyrights, trademarks, and goodwill.
Note: If the depreciation expense were not taken, profits would be overstated and taxes
would be too high.
Example: Depreciation

Suppose that Staples purchased a machine with a life of 5 years for $100,000 at
the end of 2006. If the machine went into service in 2007 the cost of the machine
would charged against production, for each of the next 5 years (i.e. the
depreciable life of the asset).

Depreciation is a noncash charge (the actual cash flow occurred in 2006) so it
must be added back to net income to obtain the net cash flow.
Financial Statements & Ratio Analysis
6
RATIO ANALYSIS
1) Liquidity Ratios – Answers the question: Can the company make required payments
as they fall due?
Current Ratio4 – the ability to meet short term obligations. “Generally, a high Current
Ratio indicates the company has enough liquid assets to continue normal operations.”
This is the most commonly used measure of short-term solvency.
Current Ratio 
Current Assets
Current Liabilities
Staples2007 Current Ratio 
4, 431,363
 1.5892
2, 788,383
Quick Ratio (Acid Test) – the ability to meet short term obligations without relying on
the sale of inventory.
Quick Ratio 
Current Assets  Inventories
Current Liabilities
Staples2007 Quick Ratio 
4, 431,363  1,919, 714
 0.9008
2, 788,383
Note: Thomson ONE Banker uses the following Worldscope definition:
QUICK RATIO = (Cash & Equivalents + Receivables (Net)) / Total Current Liabilities
Table 1: Liquidity Ratios for Staples
Liquidity Ratios
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Current Ratio
1.82
1.63
1.51
1.38
1.51
1.25
1.64
1.72
1.67
1.59
Quick Ratio
0.67
NA
0.40
0.42
0.59
0.53
0.95
0.99
0.98
0.90
Quick Ratio(T)
0.60
0.47
0.32
0.33
0.46
0.44
0.85
0.89
0.87
0.79
Sources and Notes: Data for calculations comes from Thomson ONE historical financials and the
Company’s most recent 10K. Inventory figures were unavailable for 1999. (T) indicates the Thomson
ONE formula;5 yellow highlight indicates calculated figure equals the figures provided by Thomson ONE.
Analysis: The historical data shows the current ratio was at its highest in ’98 and that
that the quick ratio peaked during ’05 and ’06. Both ratios were decreasing from ’06 to
’07. The difference in the two ratios is a result of inventory, Staples relies heavily on the
sale of inventory to meet short-term financial obligations. Creditors like to see high
4
5
Thomson ONE Banker Definition, sometimes referred to as Working Capital Ratio.
In the case of Staples, the calculation includes “short term investments” with “cash & equivalents.”
Financial Statements & Ratio Analysis
7
liquidity ratios, it means the company has short-term solvency. Investors may see high
liquidity ratios as an indication that the firm has money tied up in non productive assets
(such as cash). A chart showing the liquidity trends is provided below.
Chart 1: Liquidity Ratios for Staples
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Current Ratio
Quick Ratio
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Quick Ratio(T)
Source: Data compiled from Thomson ONE and the most recent 10K
2) Asset Management Ratios – Answers the question: Does the company have the right
amount of assets for the level of sales?
Inventory Turnover Ratio (Inventories Days Held) – measures how many times per
year inventory is turned into profits.
Inventory Turnover Ratio 
Sales
Inventories
Staples2007 Inventory Turnover Ratio 
18,160, 789
 9.4602
1,919, 714
Days Sales Outstanding Ratio – measures the average number of days from sale until
cash received.
Days Sales Outstanding 
Receivables
Receivables

Average Sales Per Day Annual Sales/365
Staples2007 Days Sales Outstanding 
720,797
 14.4868
18,160,789 / 365 
Financial Statements & Ratio Analysis
8
Note: Thomson ONE Banker uses the following SEC definition:
RECEIVABLES DAY SALES = (Receivables X 360)/Net Sales
Staples2007 Receivables Days Sales 
720,797 x 360   14.2883
18,160,789
Fixed Asset Turnover Ratio - measures how effectively the firm uses its plant and
equipment.
Fixed Asset Turnover Ratio 
Sales
Net Fixed Assets
Note: “Net Fixed Assets” often refers to “property and equipment” or just “plant.” A
fixed asset is defined as “A long-term tangible piece of property that a firm owns and
uses in the production of its income and is not expected to be consumed or converted into
cash any sooner than at least one year's time.” Examples include: plants, buildings, real
estate, equipment and furniture. “Generally, intangible long-term assets such as
trademarks and patents are not categorized as fixed assets but are more specifically
referred to as ‘fixed intangible assets.’”6
Staples2007 Fixed Asset Turnover Ratio 
18,160,789
 4.4460
4,084,723
Total Asset Turnover Ratio - measures the turnover of all of the firm’s assets.
Total Asset Turnover Ratio 
Sales
Total Assets
Note: Thomson ONE Banker uses the following Worldscope definition7:
TOTAL ASSET TURNOVER = Net Sales or Revenues / Total Assets
Staples2007Total Asset Turnover Ratio 
6
18,160, 789
 2.1627
8,397, 265
See: http://www.investopedia.com/terms/f/fixedasset.asp
7
This equation differs for Banks and Other Financial Companies. For Banks the ASSET
TURNOVER = Net Sales or Revenues / (Total Assets - Customer Liabilities on
Acceptances). Note: Customer Liabilities on Acceptances only subtracted when included
in Total Assets. For other financial companies: ASSET TURNOVER = Net Sales or
Revenues / (Total Assets - Custody Securities).
Financial Statements & Ratio Analysis
9
Table 2: Asset Management Ratios for Staples
Asset Management Ratios
Inventory Turnover
Days Sales Outstanding
Receivables Day Sales (T)
Fixed Asset Turnover
Total Asset Turnover
1998
5.10
12.94
12.76
6.22
2.17
1999
NA
11.37
11.21
5.73
2.24
2000
5.56
14.74
14.54
5.57
2.32
2001
6.51
10.19
10.05
5.43
2.68
2002
7.36
11.50
11.34
4.86
2.63
2003
7.46
11.47
11.31
4.51
2.03
2004
8.85
11.55
11.39
4.51
1.99
2005
9.02
12.26
12.09
4.59
2.04
2006
9.42
13.09
12.91
4.47
2.08
2007
9.46
14.49
14.29
4.45
2.16
Sources and Notes: Data for calculations comes from Thomson ONE historical financials and the
Company’s most recent 10K. Inventory figures were unavailable for 1999. (T) indicates the Thomson
ONE formula; yellow highlight indicates calculated figure equals the figures provided by Thomson ONE.
Analysis: Inventory turnover has been increasing since ’03 but the average number of
days from the sale until the cash is received (days sales outstanding or receivables day
sales) is also increasing. At the same time, the fixed asset turnover and total asset
turnover have stayed the same, indicating that the firm has not increased its effectiveness
of assets. A chart showing the asset management trends is provided below.
Chart 2: Asset Management Ratios for Staples
Inventory Turnover
Days Sales Outstanding
Receivables Day Sales (T)
Fixed Asset Turnover
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Total Asset Turnover
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16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Source: Data compiled from Thomson ONE and the most recent 10K
3) Debt Management Ratios – Answers the question: Does the company have the right
mix of debt and equity?
Debt Ratio – total liabilities to total assets, how the firm is financed, it measurers the
proportion of company assets provided by or owned by creditors.
Note: Creditors prefer low debt ratios to cushion against losses in the event of
liquidation, while stockholders prefer higher debt ratios because it can magnify
expected earnings.
Debt Ratio 
Total Liabilities
Total Assets
Staples2007 Debt Ratio 
3,366,491
 0.4009
8,397,265
Financial Statements & Ratio Analysis
10
Times Interest Earned Ratio – the ability to pay interest expense, it measures the extent
to which operating income can decline before the firm in unable to meet its annual
interest costs.
Times Interest Earned Ratio 
EBIT
Interest Charges
Staples2007 Times Interest Earned Ratio 
1,463,069
 30.6017
47,810
where, EBIT equals “operating income.”
Note: Thomson ONE Banker uses the following SEC definition8:
TIMES INTEREST EARNED = (Interest Expense + Income Before Tax)/Interest
Expense
Note: The SEC calculates Earnings Before Interest and Taxes (EBIT) by taking the pretax
income and adding back interest expense on debt and subtracting interest capitalized.
EBITDA Coverage Ratio – also the ability to service debt, but it accounts for two
shortfalls in the TIE (i.e. lease payments and depreciation/amortization charges).
EBITDA Coverage Ratio 
EBITDA+ Lease Payments
Interest + Principal Payments + Lease Payments
1,810,627 +676,655
47,810 + 201,866 + 676,655
2,487,282
Staples2007 EBITDA Coverage Ratio 
 2.6851
926,331
where, EBITDA  Income Before Minority Income Taxes and MinorityInterest
Staples2007 EBITDA Coverage Ratio 
+ Depreciation
 1, 471,328  339, 299  1,810, 627
8
This equation differs for Banks and Other Financial Companies. For Banks the TOTAL
DEBT PCT TOTAL ASSETS = (Short Term Debt & Current Portion of Long Term Debt
+ Long Term Debt) / (Total Assets - Customer Liabilities on Acceptances) * 100). Note:
Customer Liabilities on Acceptances only subtracted when included in Total Assets. For
other financial companies: TOTAL DEBT PCT TOTAL ASSETS = (Short Term Debt &
Current Portion of Long Term Debt + Long Term Debt) / (Total Assets - Custody
Securities) * 100.
Financial Statements & Ratio Analysis
11
Note: The SEC defines Earnings before Interest, Taxes, Depreciation and Amortization
(EBITDA) as: (Gross Profit - R&D Expenditures - Selling, General & Administrative
Expenses + Non-Operating Income) + Depreciation & Amortization. For Staples this is
equal to Income Before Minority Income Taxes and Minority Interest plus Depreciation.
The calculation is displayed in the figure below.
Figure 4: EBITDA Calculation for Staples
Income Statement
2007
Sales
18,160,789
Cost of goods sold
12,966,788
Gross Profit
5,194,001
Operating and other expenses
Operating and selling
General and administrative
Amortization and intangibles
2,946,249
770,268
14,415
Total Operating Expenses
3,730,932
Operating Income
1,463,069
5,194,001
Note:
0
-2,946,249 1,485,743 – 1,471,328
- 770,268 = 14,415
+ 8,259
= 1,485,743
+ 14,415 Note: depreciation is
+ 339,299 listed on the cash flow
= 1,810,627 statement
Other Income (expense):
Interest Income
58,839
Interest Expense
47,810
Miscellaneous Expense
Income before income taxes and minority interest
(2,770)
1,471,328
Non-operating Income =
58,839 – 47,810 - 2,770
= 8,259
Note: Staples does not have R&D
listed on its income statements.
Note: Lease payments are found by searching the notes to the 10K. The figure used in
the equation above, came from the table below.
Table 4: Minimum Lease Commitments due for Retail and Support Facilities
Source: Company 10K, “Notes to Consolidated Statements” pp. C13-C14.
Financial Statements & Ratio Analysis
12
Note: Principal Payments are also found be searching the 10K. The figure used in the
equation above came from the table below.
Table 5: Debt and Principal Payments Due within 1 Year
Source: Company 10K, “Management Discussion and Analysis” pp. B7-B8.
Table 6: Debt Management Ratios for Staples
Debt Management Ratios
Debt Ratio
Times Interest Earned
Times Interest Earned (T)
EBITDA Coverage Ratio
1998
0.59
14.00
12.38
1999
0.48
23.85
18.63
2000
0.52
31.20
31.20
2001
0.56
10.80
6.41
2002
0.50
19.57
16.83
2003
0.54
32.95
32.52
2004
0.44
25.59
25.64
2005
0.42
26.50
27.24
2006
0.42
21.74
22.76
2007
0.40
30.60
31.77
2.69
Sources and Notes: Data for calculations comes from Thomson ONE historical financials and the
Company’s most recent 10K. EBITDA Coverage Ratio was calculated for the most recent year. (T)
indicates the Thomson ONE formula; yellow highlight indicates calculated figure equals the figures
provided by Thomson ONE.
Analysis (1 of 2): The debt ratio has been decreasing indicating that the firm’s debt is
decreasing as a percent of total assets. Creditors like a lower debt ratio because it
indicates that the firm has more of a “cushion” in the case of liquidation. Stockholders
may want more leverage because it magnifies expected earnings. The chart below
displays the Debt Ratio for staples over the past 10 years.
Chart 3b: Debt Ratio for Staples
0.70
0.60
0.50
0.40
0.30
Debt Ratio
0.20
0.10
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0.00
Source: Data compiled from Thomson ONE and the most recent 10K
Financial Statements & Ratio Analysis
13
Analysis (2 of 2): The Times Interest Earned ratio for Staples has recently increased to
’03 levels. Staples has decreasing levels of debt and is becoming increasingly capable of
covering interest charges. The figure below displays Staples TIE Ratio over the past 10
years.
Chart 3a: Times Interest Earned Ratios for Staples
35.00
30.00
25.00
20.00
Times Interest Earned
15.00
Times Interest Earned (T)
10.00
5.00
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0.00
Source: Data compiled from Thomson ONE and the most recent 10K
4) Profitability Ratios – Answers the question: Do sales prices exceed unit costs, and
are sales high enough as reflected in PM, ROE, and ROA?
Profit Margin on Sales – measures the profit per dollar of sales.
Profit Margin on Sales 
Net Income Available to Common Stockholders
Sales
Staples2007 Profit Margin on Sales 
873, 677
 0.0481
18,160, 789
Basic Earning Power – measures the earning power of the firm’s assets before the
influence of taxes and leverage.
Basic Earning Power Ratio 
EBIT
Total Assets
Staples2007 Basic Earning Power Ratio 
1, 463, 069
 0.1742
8,397, 265
Financial Statements & Ratio Analysis
14
Return on Assets (ROA) – measures the return on assets after interest and taxes. “This
Profitability ratio assesses the profitability of a business in relation to its assets at a given
point in time. Generally, the higher the return on assets, the more skillfully management
is using its resources.”9
ROA 
Net Income Available to Commen Shareholders
Total Assets
Staples2007 ROA 
973, 677
 0.1160
8,397, 265
Note: Thomson ONE Banker uses the following SEC definition10:
NET INCOME TO TOTAL ASSETS = Net Income/Total Assets
Equity Multiplier – This measurement can indicate over-or under-investment of the
company by shareholders.11 The more leverage the less equity, hence a lower equity
multiplier.
Equity Multiplier 
Total Assets
Common Equity
Staples2007 Equity Multiplier 
8,397, 265
 1.6722
5, 021, 665
Note: Thomson ONE Banker uses the following SEC definition:
TOTAL ASSETS/EQUITY = Total Assets/Shareholder Equity
Return on Equity (ROE) – This ratio shows the relationship between common shares
equity to net income and reflects how well the stockholders are doing in an accounting
sense.
ROE 
Net Income Available to Commen Shareholders
Common Equity
Staples2007 ROE 
973, 677
 0.1939
5, 021, 665
9
Source Thomson ONE SEC definition for Net Income to Total Assets.
The WorldScope ROA definitions is RETURN ON ASSETS = (Net Income before Preferred Dividends
+ ((Interest Expense on Debt-Interest Capitalized) * (1-Tax Rate))) / Last Year’s Total Assets * 100.
Several exceptions exist, see notes Thomson ONE Banker, Field Definitions “Return on Assets.”
11
Source Thomson ONE SEC definition for Total Assets to Equity.
10
Financial Statements & Ratio Analysis
15
Note: Thomson ONE Banker uses the following SEC definition:
NET INCOME TO COMMON EQUITY = Net Income/(Shareholders’ EquityMinority Interest (Liabilities)-Preferred Stock)
Table 7: Profitability Ratios for Staples
Profitability Ratios
Profit Margin on Sales
Basic Earning Power
Return on Assets
Equity Multiplier
Return on Equity
1998
0.03
0.12
0.06
2.41
0.15
1999
0.03
0.13
0.06
1.92
0.11
2000
0.04
0.14
0.08
2.10
0.17
2001
0.01
0.12
0.01
2.28
0.03
2002
0.02
0.13
0.06
1.99
0.13
2003
0.04
0.12
0.08
2.15
0.17
2004
0.04
0.12
0.08
1.78
0.13
2005
0.05
0.15
0.09
1.72
0.16
2006
0.05
0.16
0.10
1.73
0.17
2007
0.05
0.17
0.12
1.67
0.19
Sources and Notes: Data for calculations comes from Thomson ONE historical financials and the
Company’s most recent 10K. (T) indicates the Thomson ONE formula; yellow highlight indicates
calculated figure equals the figures provided by Thomson ONE.
Analysis: Staples profit per dollar of sales (Profit Margin on Sales) has been increasing.
This is a good sign, indicating that Staples is managing expenses. This sentiment is also
reflected in the basic earning power ratio and in ROA. The firm’s ROE is also higher,
indicating that the firm has more net income per share of common stock. The equity
multiplier has been decreasing indicating that the firm is using less debt today than it has
in the past. In fact all profitability ratios for Staples were at the highest point in 10 years
as of 2007. The chart below reflects these trends.
Chart 4: Profitability Ratios for Staples
0.25
0.20
Profit Margin on Sales
0.15
Basic Earning Pow er
0.10
Return on Assets
Return on Equity
0.05
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
0.00
Source: Data compiled from Thomson ONE and the most recent 10K
Financial Statements & Ratio Analysis
16
DuPont Equation – The DuPont Equation ties together ROA and ROE and highlights
two different ways a company can create higher returns for itself: 1) effectively use assets
to generate sales and/or 2) higher profit margins.
Two equation, three equation, and five equation, DuPont Models exist. The two equation
and three equation DuPont Models are shown below.
Figure 5: The DuPont Model12
ROE   Profit Margin  Total Asset Turnover
 Equity Multiplier 
 Total Assets 
Sales
 Net Income  
ROE  



 Sales   Total Assets  Common Equity 
12
http://www.12manage.com/methods_dupont_model.html
Financial Statements & Ratio Analysis
17
 973, 677  18,160, 789  8,397, 265 
Staples2007 ROE  



 18,160, 789  8,397, 265  5, 021, 665 
 0.0536 x 2.1627 x 1.6722  0.1939
Table 7: DuPont Ratio for Staples
DuPont Equation
Net Income/ Sales
Sales/ Total Assets
Total Assets/ Common Equity
ROE
1998
0.03
2.17
2.41
0.15
1999
0.03
2.24
1.92
0.11
2000
0.04
2.32
2.10
0.17
2001
0.01
2.68
2.28
0.03
2002
0.02
2.63
1.99
0.13
2003
0.04
2.03
2.15
0.17
2004
0.04
1.99
1.78
0.13
2005
0.05
2.04
1.72
0.16
2006
0.05
2.08
1.73
0.17
2007
0.05
2.16
1.67
0.19
Sources and Notes: Data for calculations comes from Thomson ONE historical financials and the
Company’s most recent 10K.
Analysis: Staples has had a strong return on equity, with the exception of ’01. If you
were to leave out the equity multiplier (Total Assets/Common Equity) one can see how
much Staples would earn if it were completely debt-free. In ’07 for example the ROE
would drop to 3.6%. In other words, for fiscal year 2006, 3.06% of the return on equity
was due to profit margins and sales, while approximately 16% was due to returns earned
on the debt at work in the business. If either Office Max or Office Depot has a
comparable valuation with the same return on equity yet a higher percentage arose from
internally-generated sales, they would be more attractive investments.13
Chart 4: DuPont Ratios for Staples
3.00
Net Income/
Sales
Sales/
Total Assets
2.50
2.00
1.50
1.00
Total Assets/
Common Equity
ROE
0.50
0.00
-0.50
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
-1.00
Source: Data compiled from Thomson ONE and the most recent 10K
13
Comments are adapted from an analysis of Pepsi available at the following website:
http://beginnersinvest.about.com/od/financialratio/a/aa040505.htm
Financial Statements & Ratio Analysis
18
5) Market Value Ratios – Answers the question: Do investors like what they see as
reflected in P/E and M/B ratios?
Price/Earnings Ratio (P/E) – measures how much investors are willing to pay per dollar
of reported profits.
P/E Ratio 
Price Per Share
Earnings Per Share
$25.72
 18.9858
$1.3547
where, $25.72 is the closing price on 1 / 3 / 07 (Source : Yahoo Finance)
Staples2007 P / E Ratio 
Note: For historical market value ratios note which price you selected (i.e. average price,
year end price, etc.) and use the unadjusted close.
Price/Cash Flow Ratio – measures how much investors are willing to pay per dollar of
cash flow (where cash flow is defined as net income + depreciation and amortization).
Price Per Share
Cash Flow Per Share
where, cash flow  net income  depreciation and amortization
Price/Cash Flow Ratio 
$25.72 x 718,733 18, 485,812.76

 14.0793
973,677 +339,299
1,312,976
where, cash flow  net income  depreciation and amortization
Staples2007 Price / Cash Flow Ratio 
and $25.72 is the closing price on 1 / 3 / 07 (Source : Yahoo Finance)
Note: 718,733 is the number of shares outstanding.
Market/Book Ratio (M/B)– measures how much investors are willing to pay per dollar
of book value.
Market Price Per Share
Book Value Per Share
Common Equity
where, Book Value Per Share 
Shares Outstanding
Market/Book Ratio 
Financial Statements & Ratio Analysis
19
$25.72
 3.6812
6.9868
5,021,665
where, Staples2007 Book Value Per Share 
 6.9868
718,733
Staples2007 Market / Book Ratio 
Table 8: Market Value Ratios for Staples
Market Value Ratios
Price (Yahoo Finance)
P/E Ratio
Price/Cash Flow Ratio
Market/Book Ratio
1998
27.25
67.70
43.95
10.39
1999
28.63
71.21
42.27
7.97
2000
23.81
34.55
22.32
5.95
2001
16.56
129.37
27.27
4.42
2002
18.22
31.91
16.45
4.12
2003
17.17
18.21
11.39
3.06
2004
26.61
27.10
17.18
3.63
2005
32.74
36.38
25.63
5.87
2006
23.71
22.09
15.92
3.86
2007
25.72
18.99
14.08
3.68
Sources and Notes: Data for calculations comes from Thomson ONE historical financials, Yahoo Finance,
and the Company’s most recent 10K. The price is the closing price at the beginning of the year. For
example, $27.25 is the price as of 1/3/1998.
Analysis: The P/E Ratio for Staples has been declining. It is unclear whether this is part
of an industry trend for if the company is losing market share. Shareholders seem to be
displeased with the company’s growth strategy. The spike in ’01 is a reflection of the
low EPS rather than increased confidence in management. Both the Market to Book and
Price to Cash Flow ratios are also declining. Further analysis (i.e. comparables and
industry trends) is necessary.
Chart 4: Profitability Ratios for Staples
140.00
120.00
100.00
P/E Ratio
80.00
Price/Cash Flow Ratio
60.00
Market/Book Ratio
40.00
20.00
Jul-06
Jan-07
Jul-05
Jan-06
Jul-04
Jan-05
Jul-03
Jan-04
Jul-02
Jan-03
Jul-01
Jan-02
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
0.00
Source: Data compiled from Thomson ONE and the most recent 10K
Financial Statements & Ratio Analysis
20