Read the overview below and complete the activities that follow. In Chapter 6, w
ID: 386344 • Letter: R
Question
Read the overview below and complete the activities that follow.
In Chapter 6, we highlight the strategic path model to understand how to analyze some of the key factors that influence retail performance ratios, particularly, operating profit margin percentage and asset turnover. However, retailing is a highly competitive industry and bankruptcies are common. Since 2008, many retailers such as Eddie Bauer, Circuit City, Gottschalks, and Ritz Camera have gone bankrupt. It is important to understand multiple measures for evaluating retail performance and analyzing the financial strength of the retailer.
CONCEPT REVIEW:
Some retailers weathered the recession better than other retailers did. It is important for retailers, vendors, and investors to monitor the financial strength of a firm. Specifically, what are the chances that a retailer will go bankrupt? We can use several measures to assess the financial strength of retailers; these measures include cash flow, debt-to-equity ratio, quick ratio, and current ratio.
Explanation / Answer
Ratio Short term Assets / Short term liabilities Current Ratio Total Assets - Total liabilities Owner's equity Short term Assets - Inventories / Short term liabilities Quick Ratio Total Assets / Owner's equity Financial Leverage Ratio
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