Kroger Financial Ration and Internal Analysis

Introduction

Ratio analysis identifies the profitability, efficiency, liquidity as well as activity of a company. Ratios also offer a basis of conducting SWOT analysis. This research paper seeks to conduct ratio analysis of Kroger Co to comparing the company performance with the industry. The study also utilizes the established ratios in conducting SWOT analysis (Barney, & Hesterly, 2010).

Ratio Analysis

Net Margin

Net margin indicates the revenue, which accrue to a company after deducting expenses from sales in percentage. Net margin in 2016 and 2017 is 1.87 and 1.7 for Kroger Co. respectively. The net margin is both years are almost equal, although the company outperformed in in 2016 by 0.13 %.  However, the percentage is very low indicating that Kroger Co priced its product inaccurately during the two periods and exercised poor cost control. Normally, a net margin of 10% and above indicates excellent performance depending with the industry. In this regards, Kroger Co. had a poor control of business activities in the mentioned years.

Return on Equity

Moreover, return on equity measures the organizational capability of generating profits from stakeholders. Kroger ability of creating profit from stakeholders was low in 2017 at 28.98 % but higher in 2017 at 33.34%. Consequently, the company collected more profit in 2016 from shareholders by 4.36 %.  Equally stated, for each dollar the company earned $ 0.436 more in 2016 than in 2017. However, the company is performing below industrial average of 50%.

 

Current Ratio

In addition, Current ratio establishes the company ability of meeting its debts obligations in the short-run. While the company had a current ratio of 0.76 in 2016, the value rose to 0.8 in 2017. As a result, the organization meets its short-term obligations with ease in 2017 as compared to 2016. However, the ratio in both years is below the industrial minimum current ratio of 1. The ratio is below than one indicating that the company had liquidity problems in meeting its obligations (Hitt, Ireland, & Hoskisson, 2017).

Receivable Turnover

Furthermore, receivable turnover is an efficiency ratio indicating the frequency of collecting accounts receivable. While the organization collection of accounts receivable was 73.22 in 2016, its collection reduced to 68.19 in 2017. Consequently, Kroger ability of combining conservative credit policies with aggression of collecting department reduced in 2017. The ratio indicates that, the company had loose credit policy and poor collection of receivables in 2017. However, the company collection rate is within the industrial rage of 50 times.

SWOT Analysis

The company financial might and weakness is driven by the following threats and opportunities identified in the following SWOT analysis.

Strength         Weaknesses      
Larger Retail Networks Lacking of quality Control
Strong Marketing Position Lacking geographical diversification
Operating under a three-tier branding strategy
Strong systems of distribution (Uechi et al., 2015).
Opportunities       Threats        
Growing demand of Organic products Growing competition
An increase of online sales Increasing labor wages that reduce pits profits
Higher demand of privately labeled products High regulations within the food safety industry

 

Conclusion

Ratio analysis depicts the company performance. Precisely, current ration, net margin, receivable turnover and return on equity indicate Kroger performance between 2016 and 2017. According the analysis, the company performed better in 2016 than in 2017. A SWOT analysis depicts the cause of decline in performance as well as opportunities for future expansion.

 

 

 

 

 

 

Appendixes

Growth Profitability and Financial Ratios for The Kroger Co
Financials
Year 2016-01 2017-01
Profitability 2016-01 2017-01
Net Margin % 1.86 1.7
Return on Equity % 33.34 28.98
Liquidity/Financial Health 2016-01 2017-01
Current Ratio 0.76 0.8
Efficiency Ratios
Efficiency 2016-01 2017-01
Receivables Turnover 73.22 68.19

 

 

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