Financial ratios are often used to evaluate the overall financial condition of an organization or corporation. These ratios may be used by managers in a firm, by potential shareholders and creditors of the company. Financial analysts make use of financial ratios to compare the strengths and weaknesses of various companies. By comparing the financial ratios of a company over the, the progress of growth can be compared and analyzed. This paper discusses financial ratios of BestBuy based on financial statements.
Liquidity Ratios:
Current ratio = current assets ÷ current liabilities
(2017) = $ 10,516 / $7,122 = 1.47
(2016) = $ 9,886 / $6,925 = 1.42
(2015) = $ 11,472 / 7,777 = 1.48
The current ratio is a liquidity ratio that indicates if a company can pay its short-term liabilities. The current ratio of BestBuy has been at around 1.4. This is good and it means that the company can liquidate all its assets to cover the current liabilities.
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Solvency Ratios:
Debt-to-assets ratio = total liabilities ÷ total assets
(2017) = $ 9,147 / $ 13,856= 0.66 or 66%
(2016) = $ 9,141 / 13,519= 0.68 or 68%
(2015) = $ 10,245 / 15,245 = 0.67 or 68%
The debt-to-asset ratio gives a measure of the percentage of a company’s total assets which is financed by debt. BestBuy’s debt-to-asset ratio has been fairly constant at about 67% for the three years. The ratio is better compared to industry standards. This shows that the company has low financial risks from its liabilities.
Profitability Ratios
Return on assets (ROA) = net income ÷ total assets
(2017)= $1,228 / $13,856 = 0.09 or 9%
(2016)= $897 /$ 13,519 = 0.066 or 6.6%
(2015)= $1,233 / $15,245 = 0.08 or 8%
The Return on Asset gives a measure of how the company effectively uses its assets. The ROA for BestBuy was relative low throughout the years. The ROA was at 9% in 2017, indicating that for every $1 of the company assets, the firm would generate an income of $0.09. This shows that the company does not use its current assets efficiently. BestBuy should make improvements on the utilization of assets to create a higher income.
Return on equity (ROE) = net income ÷ total stockholder’s equity
(2017)= $1,228 / 4,709 = 0.2608 or 26.08%
(2016)= $897 /4,378 = 0.2049 or 20.49%
(2015)= $1,233 / 4,995 = 0.2468 or 24.68%
The Return on Equity indicates the return to equity holders against the total assets. The ratio measures the measure of income attributed to shareholders against the income that the shareholders put in the firm. The ROE for 2017 was 26.08% showing that for every $1 of the shareholder’s equity, the firm generated $0.2608 in net income. The ROE of decreased between 2015 and 2016 and hit a high of the three years in 2017. This shows that the company was on a forward trend in the year 2017.
The financial ratios above show that BestBuy is on a good trend to growth. The current ratio shows that the company has the ability to liquidate its assets to fulfill financial obligations. The debt-to-asset ratio doing averagely well compared to industry standards. However, based on the ROE and ROA, the company should invest more to yield more returns on its assets.
