Question

For GameStop conduct a brief financial analysis: Select six relevant financial ratios related to the firms strategies.

-include the formula for the ratio

-what the ratio tells analysts about the firm

-why the ratio is what it is.

-exactly what the ratio means for the firm

-compare these to industry averages.

-lastly a productivity analysis, the easiest of which is total revenue divided by the total number of employees.

Answer 1

Game Shop conduct a brief financial Analysis . Six relevant financial ratio related to the firms strategy

Major six ration to analysis financial statement or determined health of the financial are as below :

Working Capital Ratio – Companies major part to judge is thir Liquidity position, How easily company can convert asset into cash to pay off creditors + Long term liability . Formula to calculate working capital ration would be : Current Asset/ Current Liability

PEG ratio ( Price to earning growth) – This ratio is very popular now and much ahead as compared with Price Earning ratio. PEG ratio factor companies growth . this represents “ Price to earnings to Growth ratio”

Gross profit Margin , EBITDA margin = This margin ( ratio) represents companies Operating position. Recent days most important factor to analysis companies performance would be “ EBITDA margin” This Margin also help company to do valuation . Formula use = EBITDA / Net Sales , Gross Profit/ Net Sales

Interest coverage ratio – In case of company having multiple debt . In such case , this ration is mot important to understand that quantum of Interest burden on companies Income Statement. Interest cost always create burden for company and company needs to reduce debt burden to control over Interest cost . Formula use= EBIT/ Interest Expenses

Receivable Turns One of teh most important ratio / KPI for any company to understand how quickly company able to collect cash and maintain liquidity among companies . Movement of account receivable is must important factor for any company . Reduction in Account receivable will create less burden on Working capital and company can maintain liquidity , Formula use in general = Net credit sales/Average account receivable

Return on Equity ( ROE) – This is one of the most important profitable factor . formula use = net Income /Shareholder’s Equity

Productivity analysis – company can use RPR ( revenue per Resources) . Now multiple company using different parameter to judge their productivity like Telcos use – ARPU ( Average rate per user , Aviation Industry use – Average rate per seat per distance . This ration represents that with help of present employee , how much revenue company can generate and to increase further productivity , company either increase top line growth or control on Human resources