“Ratio Analysis is the single most important technique of financial analysis in which quantities are converted into ratios for meaningful comparisons, with past ratios and ratios of other firms in the same or different industries.” Ratio analysis determines trends and exposes strengths or weaknesses of a firm.
PetSmart is using their capital to generate sales at an increasing rate. They have been increasing in NWC turnover from every year and are projected to keep increasing above the industry average.
The profit margin is a measure of profitability. This is a great way to compare their pricing strategies and how well it controls costs. As you can see on the left, PetSmart is doing pretty well going above the industry average in the last …show more content…
PetSmart has been constantly buying out their growing by purchasing competitors which has forced them into a dramatically changing net income. They have seen an increase in retained earnings each of the last five years and in the projected years as well. PetSmart has been able to keep a relatively stable but low debt to equity ratio. The forecasted years for the debt-equity ratio have been done to increase slowly to mirror the industry averages. If PetSmart wants to maintain their growth, they will need to increase their profit margin ratio at a consistent rate. The average profit margin ratio in the industry is 25.88 while PetSmart is at 30.6. When forecasting, the percent growth rate of sales was analyzed by incorporating the percentage increase in sales that will be discussed in a later section. Using the same percentage, we then increase the company’s property, plant and equipment along with the assets and …show more content…
Their sources of cash flow are consistently coming from retained earnings with help from additional paid in capital along with property and equipment. PetSmart is most likely using this money to purchase competitors in the market along with developing new products.
Purchasing competitors in the market and creating new and better machinery has been important for PetSmart to maintain their success in the market. PetSmart has had high use of goodwill which proves they are consistently purchasing other companies. We can predict that PetSmart will continue to purchase competitors along with buying new machinery to keep broadening their product line.
Assumptions
For the forecasting portion, we have to assume the hypothetical financial and policy changes were made which impact the company. Any additional long term debt was assumed to have a 3.6% growth rate. It was assumed that any property, plant and equipment assets will be depreciated over ten years. We can also assume the tax rate was the average of the tax rates of
PetSmart is using their capital to generate sales at an increasing rate. They have been increasing in NWC turnover from every year and are projected to keep increasing above the industry average.
The profit margin is a measure of profitability. This is a great way to compare their pricing strategies and how well it controls costs. As you can see on the left, PetSmart is doing pretty well going above the industry average in the last …show more content…
PetSmart has been constantly buying out their growing by purchasing competitors which has forced them into a dramatically changing net income. They have seen an increase in retained earnings each of the last five years and in the projected years as well. PetSmart has been able to keep a relatively stable but low debt to equity ratio. The forecasted years for the debt-equity ratio have been done to increase slowly to mirror the industry averages. If PetSmart wants to maintain their growth, they will need to increase their profit margin ratio at a consistent rate. The average profit margin ratio in the industry is 25.88 while PetSmart is at 30.6. When forecasting, the percent growth rate of sales was analyzed by incorporating the percentage increase in sales that will be discussed in a later section. Using the same percentage, we then increase the company’s property, plant and equipment along with the assets and …show more content…
Their sources of cash flow are consistently coming from retained earnings with help from additional paid in capital along with property and equipment. PetSmart is most likely using this money to purchase competitors in the market along with developing new products.
Purchasing competitors in the market and creating new and better machinery has been important for PetSmart to maintain their success in the market. PetSmart has had high use of goodwill which proves they are consistently purchasing other companies. We can predict that PetSmart will continue to purchase competitors along with buying new machinery to keep broadening their product line.
Assumptions
For the forecasting portion, we have to assume the hypothetical financial and policy changes were made which impact the company. Any additional long term debt was assumed to have a 3.6% growth rate. It was assumed that any property, plant and equipment assets will be depreciated over ten years. We can also assume the tax rate was the average of the tax rates of