Using 2013 information, identify five ratios that the student believes indicate financial weakness within Whole Foods...

Using 2013 information, identify five ratios that the student believes indicate financial weakness within Whole Foods Market and provide an explanation of his/her position.

Profitability Ratios	2013
Operating Margin	0.36
Proft Margin	0.04
ROA	0.10

Liquidity Ratios
Current Ratio	1.68
Quick Ratio	1.30

Debt Management Ratios
Total debt to total capital	0.18
Times interest earned

Asset Management Ratios
Inventory Turnover	31.20
Fixed Assets Turnover	1.38
Total assets turnover	2.33

Solutions

Expert Solution

From all the rations provided, 3 ratios that indicates financial weakness of the company are:

1. Profit Margin: The profit margin is 0.04 or 4% which is very low for any company operating within any industry. If the same margin is compared with Operating Margin which is 0.36 or 36% this indicates that the company's expenses below operating margin is very high which can be either Interest Expenses or Taxes. But given total debt to total equity is 0.18, it seems company is paying very high taxes and is not utilizing their capital properly.

2. Fixed Assets Turnover: The fixed assets turnover is also just 1.38 which means the company's sale is only around 1.38 times the value of their fixed assets and is low. Ideally if this ratio is around ~2.5 it would be average.

3. Total debt to Total equity: This ratio for the company is 0.18 which means 18% is debt and 82% is equity in the company's capital structure. This means that company is not utilizing the leverage optimally and hence is paying high taxes too which can be saved by paying interest. Therefore, this is also a poor financial management from the company.

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Times interest earned ratio is not given. This can also be analyzed to see if the company's earnings are suficient or not to pay off the debts.

jeff jeffy answered 1 year ago

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