Financial Ratio Analysis ReportJoin now to read essay Financial Ratio Analysis ReportFINANCIAL RATIO ANALYSIS REPORTThe fiscal year 2004 was a relatively soft year for Barnes & Noble, Incorporated (B&N). Blockbuster nonfiction books that came out during the year may not have come from the company, but business remained strong. This is due to the million of books already in the market, including phenomenal fiction hits “The Da Vinci Code,” “The Five People You Meet in Heaven,” and “The Rule of Four,” and thousands of new releases during the year. This claim was supported by the stable and strong figures embodied in the financial statements.
The current ratio shows the company’s ability to meet its currently maturing obligations, and serves as the primary test to measure one’s liquidity position. B&N achieved a relatively strong liquidity position for the year 2004 at 1.48:1. Comparing it to the previous 2 years’ figure of 1.52:1 and 1.53:1, the reduction is immaterial as the company still has enough ready resources to meet the current liabilities. Moreover, the current assets of discontinued operations increased the ratio of 2003 but were evened out by 2004. As a more stringent measure, the acid-test ratio of the company increased from .23:1 in 2003 to .46:1 in 2004. This vast improvement was attributable to the increased cash and receivables figures of US$253M and US$23M, respectively.
The Report:
[1] A number of firms are being required to submit their liquidity reports regarding their balance sheets, which are subject to the federal Financial Accounting Standards Board (FASB). These provide a snapshot of overall investment and financial investment activities in the business, and reflect management’s decision about which companies should be able to respond to an overall economic situation. At this time, the FASB will provide guidance on the financial reporting requirements of certain firms and the ability of certain firms to comply with them.
[2] With the exception of US$75,051 of net equity income, the FASB does not monitor and control the liquidation or termination of all other assets or liabilities in the Company’s consolidated financial statements. In the absence of these requirements, the Company’s financial report will be consolidated in financial statements. The report will, however, include accounting for the activities performed by all affected financial groups, and will include the financial reporting obligations. As a result, the company reports financial, operating, and debt obligations of its subsidiaries, as of June 30, 2004, for which these entities are subject to applicable requirements. Any accounting change would be reported, upon posting, and the report will be completed through December 31, 2005.
Summary Report on Form 9-K with the Fiscal Year Ended December 31, 2004
[3] In accordance with a request from the FASB for an accounting change to the Form 9-K required pursuant to the Fair Disclosure Act (FDA) regarding information that is not disclosed within the reporting period, the firm shall provide, within the last 90 days of the fiscal year, a copy of the Form 9-K required pursuant to the FDA for the fiscal year ended December 31, 2004. This form will be incorporated into the consolidated financial statements for the fiscal year ended December 31, 2004. The filing date for this Form 9-K will be October 29, 2006, in the calendar year end[4].
[4] The report, which was prepared jointly by the financial and accounting agencies of J.P. Morgan Chase & Co., Morgan Stanley Investment Management Corp.—JPMorgan Chase JPMorgan JPC, and Morgan Stanley Investment Management, JCP, has an aggregate effective time frame of three years, which includes the last 10 fiscal years and five years beginning with the beginning of the 2005 restructuring. The summary report was prepared for the fiscal year ended December 31, 2004, from financial statements for the period. This summary report is intended to provide additional information not used by previous reporting periods, particularly for the reporting period described in “Management and Economic Outlook of the United States of America,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Financial Condition and Results of Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
[5] The financial reporting requirements of
The Report:
[1] A number of firms are being required to submit their liquidity reports regarding their balance sheets, which are subject to the federal Financial Accounting Standards Board (FASB). These provide a snapshot of overall investment and financial investment activities in the business, and reflect management’s decision about which companies should be able to respond to an overall economic situation. At this time, the FASB will provide guidance on the financial reporting requirements of certain firms and the ability of certain firms to comply with them.
[2] With the exception of US$75,051 of net equity income, the FASB does not monitor and control the liquidation or termination of all other assets or liabilities in the Company’s consolidated financial statements. In the absence of these requirements, the Company’s financial report will be consolidated in financial statements. The report will, however, include accounting for the activities performed by all affected financial groups, and will include the financial reporting obligations. As a result, the company reports financial, operating, and debt obligations of its subsidiaries, as of June 30, 2004, for which these entities are subject to applicable requirements. Any accounting change would be reported, upon posting, and the report will be completed through December 31, 2005.
Summary Report on Form 9-K with the Fiscal Year Ended December 31, 2004
[3] In accordance with a request from the FASB for an accounting change to the Form 9-K required pursuant to the Fair Disclosure Act (FDA) regarding information that is not disclosed within the reporting period, the firm shall provide, within the last 90 days of the fiscal year, a copy of the Form 9-K required pursuant to the FDA for the fiscal year ended December 31, 2004. This form will be incorporated into the consolidated financial statements for the fiscal year ended December 31, 2004. The filing date for this Form 9-K will be October 29, 2006, in the calendar year end[4].
[4] The report, which was prepared jointly by the financial and accounting agencies of J.P. Morgan Chase & Co., Morgan Stanley Investment Management Corp.—JPMorgan Chase JPMorgan JPC, and Morgan Stanley Investment Management, JCP, has an aggregate effective time frame of three years, which includes the last 10 fiscal years and five years beginning with the beginning of the 2005 restructuring. The summary report was prepared for the fiscal year ended December 31, 2004, from financial statements for the period. This summary report is intended to provide additional information not used by previous reporting periods, particularly for the reporting period described in “Management and Economic Outlook of the United States of America,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Financial Condition and Results of Operations” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
[5] The financial reporting requirements of
The company not only improved its liquidity position but also in efficient utilization of fast-moving assets. This can be measured by using Activity Analysis ratios. One of these is the Accounts Receivable Turnover rate, which measures the average number of sale-collection cycles completed by the firm during the year. From the 2002 rate of 32.07 times, B&N enhanced their sales-collection efforts as proven by the rates 50.52 times and 77.60 times for the years 2003 and 2004 respectively. This development would find their ultimate effect in the increased sales figure of 11.47% and cash balance of 89.75%. As a result, collection time for sales also improved as can be determined by computing the Number of Day’s Sales in Receivables. The rate of 4.7 days for the year 2004 is a vast improvement from 7.22 and 11.38 days for the years 2003 and 2002, respectively. This means the company had a shorter collection period.
Another ratio that may aid in evaluating a company’s activity efficiency is the Inventory Turnover rate. This is most relevant to businesses that keep big amounts of resources in stock like B&N of which inventory are accounted for 65% of total current assets, and 39% of total assets. Inventory Turnover rate measures the number of times inventories were acquired and sold during the period, and thus relates to sales volume. In B&N’s case, the rate is of a steady increase, from 1.96 times in 2002 to 2.28 times in 2003, and 2.64 times in 2004. This trend continued in the Number of Day’s Sales in Inventory, which is primarily used to measure the appropriateness of inventory levels in terms of time required to sell, or “turnover” of goods. From 186.12 days in 2002, the company improved to 138.19 days by 2004, or 48.33 days.
To measure the overall efficiency of asset utilization, analysts usually use the Asset Turnover rate. It should be noted that when a long-term investment does not contribute to sales, such as land held for investment, the same should be excluded from the computation. B&N’s history shows that asset turnover rate on 2002 was pegged at 1.31. By 2003, this decreased by .03. It can be attributed to current and non-current assets of discontinued operations in which by year 2004, those were already eliminated. However, 2004 saw the rebound of the asset turnover rate to 1.37.
For the investors, the profitability of the company is the primary concern. As such, many measures are developed in order to measure this business aspect. Profit Margin on Sales rate specifically measures profit percentage per dollar of sales. There was a slight reduction in 2004 (2.94%) from that of the previous year (3.47%). This is attributable again to profit brought in by discontinued operations wherein year 2003 has the higher amount of US$7.53M. Just because B&N is primarily a merchandising company wherein cost of goods sold is a vital expenditure, the Gross Profit Margin rate is a significant ratio as this helps in evaluating inventory control measures. Moreover, gross profit is the very thing that recovers operating expenses. B&N maintains the rate at 30% with slight differences through the comparative years. The year 2004 figure of 30.51% is consistent with the company’s overall improvement.
The rate used to evaluate the efficiency of assets to generate income is called the Rate Earned on Average Assets, or Return on Investment (ROI). There was a slight decrease in 2004 from 2003, posing the figures 4.03% and 4.46%, respectively.