Best Buy Co, Inc., is a leading retailer specializing in consumer electronics. A

Question

Best Buy Co, Inc., is a leading retailer specializing in consumer electronics. A condensed income statement and balance sheet for the fiscal year ended February 1, 2014, are shown belovw Best Buy Co., Inc. Balance Sheet At February 1, 2014 ($ in millions) Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable, net Merchandise inventories Other current assets $ 2,678 223 1,308 5,376 900 Total current assets Noncurrent assets 10,485 3,528 Total assets 14,013 Liabilities and Shareholders' Equity Current liabilities Accounts payable Other current liabilities $ 5,122 2,314 Total current liabilities Long-term liabilities Shareholders' equity 7,436 2,588 3,989 Total liabilities and shareholders' equity$ 14,013

Explanation / Answer

1-a.Current ratio

Current ratio is considered as comparison between current assets with the current liabilities

Current ratio=Current assets/current liabilities

Current ratio=Total current assets/total current liabilities

=$10485/$7436

=1.41

The Current ratio is better than Industry ratio of 1.23

1-b Acid-Test Ratio

The another name of acid test ratio is quick ratio.It measures the ability to repay the current liabilities with its quick assets

Hence Acid Test Ratio=(CAsh+maeketable securities+Accounts receivable)/Current liabilities or

(Total current assets-Inventory-Prepaid Expenses)/Current liabilities

We use 2nd one

=($10485-$5376)/$7436

=0.68

Best buy acid test ratio is better than Industry ratio 0.60

1-cDebt Equity ratio

Debt Equity ratio is a ratio used to mention the proportion of Debt to be covered by Shareholders

Debt equity ratio=Debt/Equity=Total Liabilities/Shareholders funds

=(Current liabilities+Non current liabilities)/Shareholders funds

=($7436+$2588)/$3989

=$10024/$3989

=2.52 times

Best buy ratio of Best buy is not better than Industry debt equity ratio of0.70

1-d Interest earned ratio is also known as Interest Coverage Ratio

Interest Coverge ratio=Earnings before interest and taxes/Interest Expense

Given $100 as interest expense

=$1087/$100

=10.87 times

The capacity of Best buy is better than Indutry of5.66 times

Hence apart fromDebt equity ratio BEst buy is good is other aspects

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