Toys R Us and Subsidiaries Essay

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Toys R Us and Subsidiaries Running Head: Toys "R" Us 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.
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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

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