Toys

“R” Us And Subsidiaries Essay, Research Paper

Running Head: Toys “R” Us Financial Analysis

Toys “R” Us and Subsidiaries

Financial Statement Analysis

MC500 Management Accounting

Sherri K. Thomas

City University, Tacoma

May 22, 1999

Toys “R” Us and Subsidiaries Financial Analysis

Note: Consistent with the financial report, all amounts are expressed in millions except per share data.

Ernst & Young, LLP, independent auditors for Toys “R” Us Inc. and Subsidiaries issued an unqualified opinion on the company’s financial statements as of February 1, 1997 and on the consolidated results of operations and cash flows for the three years ending February 1, 1997, February 3, 1996 and January 28, 1995. The report by the independent auditors and their issuance of an unqualified opinion serves to provide reasonable assurance to stockholders, management, regulatory agencies and the public, that the financial statements are materially correct. Materiality is interpreted to mean that there are no unrecorded adjustments which would impact the decisions or opinions of the readers of these financial statements. The inclusion of the auditors’ report in the year-end financial report lends credibility to the presentation and allows the users including investors and potential investors to rely on the information as presented.

Common Stock & Treasury Stock

The company does not have preferred stock and has not declared or paid dividends on its common stock. As of February 1, 1997, Toys “R” Us, Inc. and subsidiaries had authorized 650 shares of par value $.10 common stock, of which 300.4 shares were issued. 12.6 shares were held in treasury stock leaving 287.8 shares issued and outstanding. The book value of the common stock issued and outstanding was $14.56 which is down from February 3, 1996 at which time the book value was $18.8. The total paid-in capital for common stock was $ 518.8 as of February 1, 1997 and $572.8 as of February 3, 1996. The average price per share received by the company for all common stock issued since inception of the corporation as of February 1, 1997 was $ 1.73.

Ratio Analysis

“There’s a saying that the nice thing about standards is that there are so many of them to choose from.” (Maciag, 1998) It is important to choose carefully the ratios to be analyzed to be sure that there is relevance between the data and the conclusions drawn from it. When choosing industry standards, it is important to select like industries with commonalties that support comparison of results. It would not be appropriate to compare the financial statement of the cattle rancher with the financial statement of the meat processor even though the both derive their income from the beef industry. Their role in the industry is not the same. Their capital requirements, cash flows and profit margins are not comparable. In querying leading investor researchers, Standard & Poors, Thompson, and The Wallstreet Journal, the industry standards consistently mixed results from Toys “R” Us and other retailers with Mattel and Hasbro and others which are primarily manufacturers. While this is not ideal, these ratios are used here for comparison in the absence of other reliable standards. Ten year history from 1990 through 1999 with extensive ratio analysis is included in Appendix A. Analysis of the five years from 1995 through 1999 are included here with comparisons to the industry standards as available in the Spring of 1999. Graphs include nine to ten years of data as available.

Short-term liquidity

The company’s short term liquidity of 1.24 in 1997 does not make it a desirable credit risk. “Many bankers and other short-term creditors traditionally have believed that a retailer should have a current ratio of at least 2 to 1 to qualify as a good credit risk.” (Meigs, 1999) The company is equal to the industry standard however. Short term liquidity as measured by the quick ratio which excludes inventory and other short term assets (assumed to be prepaids etc.) is also low at .3, however this is higher than industry standard. It is likely the heavy investment in inventory that drives these ratios to be so low.

Ten Year Trend for Current and Quick Ratios

Another calculation that is worth looking at is the operating cash flow which is cash flow from operations/current liabilities. (Mills, 1998) For 1997 and 1996 this was .29 and .12 respectively. These seem extremely low but without comparable ratios for industry peers, it is difficult to evaluate.

Profitability

Net return on assets (ROA) is measured by dividing operating income by average total assets to determine whether the company is earning a reasonable return on the resources available. ROA for 1997 was 5.79% as compared to industry standard of -.6%. (Thomson) Return on equity (ROE) measures the return on stockholders’ investment. ROE for the year ending in 1997 was 11.21% compared to the industry standard 16.2% (Thomson). The following graph shows ROE and ROA for the last nine years.

Earnings per share (EPS) is one of the most widely used ratios in accounting. Earnings per share was $1.54, $.53 and $1.85 respectively for years ending 1997, 1996 and 1995. The following chart shows the volatility of EPS for Toys “R” Us. The industry standard is $.64. (Thomson)

Внимание, отключите Adblock

Вы посетили наш сайт со включенным блокировщиком рекламы!
Ссылка для скачивания станет доступной сразу после отключения Adblock!

Скачать