Reitmans – Financial Analysis From an analysis of the Company’s ratios over the last three years since 2009, as found in the Appendix: Exhibit _, the quantitative data reveals an unfavourable trend in performance. Liquidity Reitmans has the strongest current ratio when compared to its competitors—The Gap and Le Chateau—at almost double their value. However, the Company’s ratio has been in decline since 2009; at that time, it was at 4. , then fell to 4. 3, and finally, to 4. 1 in 2011. This trend reveals a slight decline in Reitmans’ short-term liquidity; however, even with the decline, the Company has more than enough liquidity to meet their short-term cash requirements. It could even be argued that they are not utilizing their assets to their full potential, as the usual acceptable current ratio is 2:1.
Even when inventory is not considered, as with the quick ratio and cash ratio, Reitmans’ ratios are unusually high when compared to their competitors—which adds strength to the argument that they are not utilizing their assets as effectively as they could be if they were to invest their funds instead of leaving them sitting idle within an account. Asset Management As revealed by their inventory turnover of 1. 2, Reitmans sells its inventory more slowly than its competitor, the Gap, does with their ratio of 5. 7 in 2011.
However, the Gap may have a higher than normal turnover, as Reitmans is favourable when compared to their other competitor, Le Chateau. The Company’s accounts receivable turnover has remained relatively stable over the past three years, fluctuating slightly but still taking just one day on average to collect from customers. In contrast, Reitmans’ accounts payable turnover has been experiencing an unfavourable decline since 2009; it used to take just 106 days to make payments to suppliers, but now it takes 257 days, over twice the time.
Long-term Debt Paying Ability Reitmans’ debt ratio measures the extent of creditor financing and leverage. Their percentage of debt, 22%, is much smaller than their competitors at 63% and 39% and a result, Reitmans’ is much more solvent and more able to maintain their long-run financial viability. Further, when looking at the Company’s times interest earned, we see that Reitmans is considered to be less-risky for lenders as they are able to earn their fixed interest charges ver 3 times per year; this exceeds the general guideline that says creditors are reasonably safe if the company has a times interest earned ratio of two or more times. Profitability Most merchandising companies need sufficient gross profit in order to cover their operating expenses or else they will likely fail. Reitmans, as similar to their competitors, maintains a higher profit ratio of 64% in 2011 and 67% in 2010. Even though the Company’s other measures of profitability are still favourable compared with their competitors, Reitmans’ profitability ratios have declined by almost half from 2010 to 2011.