Question

for the company RITE AID add all calculation

1. Prepare a horizontal analysis of your company's Income Statement over the past two years.

2. Calculate the following ratios for the most recent two years and comment on the results of your ratio analysis. How do the results for your company compare to industry averages?

a. Accounts receivable turnover: Note: Since credit sales information will not be available in the 10-K reports for the accounts receivable turnover, we will be using sales/net sales or similar account instead of credit sales. Also, be sure to use the average accounts receivable.

b. Profit margin

c. Return on assets: Be sure to use the average total assets.

d. Times interest earned = (income before taxes + interest expense)/interest expense. Note that income (or earnings) before interest & taxes has the abreviation EBIT. Also, EBIT is sometimes referred to as "Income from Operations."

only question 2 and information used from 2020 10k filing.

Answer 1

Hi,

As mentioned above I am just answering Question 2 now .

Above is the company SEC filing .

Since RITE AID is in to retail - Consumer food & drug sector we will compare it with the industry averages.

		RITE AID		Industry Average
Profit margin	Net Income / Sales	-2.06%		2.52%
Accounts receivable turnover	Credit Sales/ Accounts receivables	45		30
Return on assets	Total Average Assets/ Sales	38.86%		62.00%
Times interest earned ratio	EBIT /Total Interest	-0.36		NA

So here I had compared with the available industry averages . If the company numbers exceeds Industry Average it means it is over valued but if it below industry average that means it is undervalued.

In the current scenario due to Covid 19 all the numbers are below industry average and hence the stock is undervalued. From the above ratio analysis it is good time to invest in the current stock to get good returns in the future.