Current Ratio: With a current ratio of 1.93 : 1, HBC would qualify as a good credit risk to creditors. Although this statement in particular is of little interest to investors, it may have an effect on profitability later. As a company grows, it does so in an effort to generate more earnings and in the end satisfy investors. Often, the money used to sustain growth and profitability is borrowed. If a company can prove itself to be a good credit risk through a strong current ratio, it will prove beneficial for shareholders as future growth and profitability become more attainable. Canadian Tire's current ratio of 1.8 : 1 is slightly weaker than HBC's, but is still a strong indicator that Canadian Tire has the ability to instill confidence in creditors to finance future growth in the pursuit of profitability.
Quick Ratio: HBC's extensive merchandise inventory has a tendency to skew the current ratio in a way that benefits the company. Although Merchandise inventory is a current asset, it is not a good measure of short-term solvency. In other words, merchandise inventory does not properly represent how easily current assets can be paid, it is not liquid enough to pay current liabilities immediately. Under the quick ratio, HBC is shown to be considerably less liquid than originally portrayed in the current ratio. HBC yields a quick ratio of 0.57 : 1, or 57%. Canadian Tire is similar to HBC in that its enormous merchandise inventory skews the company's current ratio. However, under the quick ratio, Canadian Tire becomes more liquid that HBC because it posses more very liquid assets. A quick ratio of 62% proves to be 5% higher than HBC's. Although these differences between the current and quick ratio are expected in merchandising businesses, both HBC and Canadian Tire become far less liquid in the short-run than they are in the long-run.
Receivable Turnover: HBC has a fairly high receivable turnover.
Ratio Analysis Ratio Analysis is the process of determining and presenting the relationship of items and group of items in the statements. ... Ratio Analysis Ratio is an expression of relationship between two values. ... Objectives of Ratio Analysis 1. ... Ratio analysis facilitates inter firm comparison. Advantages/Importance of Ratio Analysis 1. ...
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