Question

 Ratio Research: Use the template to analyze the selected ratios (profitability, financial strength, valuation, management effectiveness, dividends, and efficiency) for both of the competitors. To complete this part, you can reference the Morningstar website in the Module Two resources to obtain the ratios. You can also use the SEC EDGAR Company Filings resource from Module One to obtain the ratio from annual reports. Please note: The ratios have to be from the same time period (the same year for both competitors). For training on how to use Excel, visit the Hoonuit training site or search YouTube to find appropriate Excel training videos.  Industry Ratios: To analyze ratios for the companies, you also need to obtain the ratios for the industry that the competitors operate in. Industry values for the ratios can be found in the index column. If no index value is available, put the five-year averages for both companies in the industry column and use these figures for the industry comparison of your ratio analysis.  Ratio Analysis: Compare the two companies based on their ratios. Use the last column in the template to write in detail how each company is doing based on the ratios. Compare the company ratios to the industry and each other

MBA 520 Module

RATIOS	Automotive	Autozone	O'Reily's	ANALYSIS
Profitability Ratios (%)
Gross Margin
EBITD Margin
Operating Margin
Pretax Margin
Effective Tax Rate
Financial Strength
Quick Ratio
Current Ratio
LT Debt to Equity
Total Debt to Equity
Interest Coverage
Valuation Ratios
P/E Ratio
Price to Sales (P/S)
Price to Book (P/B)
Price to Tangible Book
Price to Cash Flow
Price to Free Cash Flow
Management Effectiveness (%)
Return On Assets
Return On Investment
Return On Equity
Dividends
Dividend Yield
Payout Ratio
Efficiency
Revenue/Employee
Net Income/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover

Answer 1

RATIOS	Automotive	Autozone	O'Reily's	ANALYSIS
Profitability Ratios (%)
Gross Margin	8	7	7.5
EBITD Margin	6	5.5	6
Operating Margin	5	5	5
Pretax Margin	2	2	2.5
Effective Tax Rate	30%	30%	30%
Financial Strength
Quick Ratio	1.5	2	1.75
Current Ratio	2	1.46	1.54
LT Debt to Equity	1.48	1.65	2.03
Total Debt to Equity	1.55	1.45	1.35
Interest Coverage	2.89	3.98	4.65
Valuation Ratios
P/E Ratio	5	6	7
Price to Sales (P/S)	6.89	4.56	8.98
Price to Book (P/B)	7.89	9.87	10.23
Price to Tangible Book	1	2	3
Price to Cash Flow	2.560	4.56	1.23
Price to Free Cash Flow	2	5	6
Management Effectiveness (%)
Return On Assets	1.3	2	2.68
Return On Investment	2.24	1.23	1.68
Return On Equity	3.65	1.32560	1.7895
Dividends
Dividend Yield	8.65	7.23	4.35
Payout Ratio	7.8	4.23	4.38
Efficiency
Revenue/Employee	5.6	4.23	4.69
Net Income/Employee	8.96165	7.56	8.65
Receivable Turnover	2.36	5.36	4.65
Inventory Turnover	4.25	1.236	5.236
Asset Turnover	1.235	12.36	18.95

There are many types of ratios that you can use to measure the efficiency of your company's operations. In this section we will look at four that are widely used. There may be others that are common to your industry, or that you will want to create for a specific purpose within your company.

The four ratios we will look at are:

• Inventory Turnover Ratio
• Sales to Receivables Ratio
• Days' Receivables Ratio
• Return on Assets

1. The inventory turnover ratio measures the number of times inventory "turned over" or was converted into sales during a time period. It is also known as the cost-of-sales to inventory ratio. It is a good indication of purchasing and production efficiency.
2. The sales-to-receivables ratio measures the number of times accounts receivables turned over during the period. The higher the turnover of receivables, the shorter the time between making sales and collecting cash. The ratio is based on NET sales and NET receivables.
3. The return on assets ratio measures the relationship between profits your company generated and assets that were used to generate those profits. Return on assets is one of the most common ratios for business comparisons. It tells business owners whether they are earning a worthwhile return from the wealth tied up in their companies. In addition, a low ratio in comparison to other companies may indicate that your competitors have found ways to operate more efficiently. Publicly held companies commonly report return on assets to shareholders; it tells them how well the company is using its assets to produce income.