Question

What types of Ratios are good ratios that would be good to use against Sears competitors to estimate competition?

Answer 1

Solution:

Since Sears in the business of departmental store, there can be the various financial ratio that will be helpful in evaluating the performance

1. Days inventory outstanding: This ratio signifies that for how many days inventory remains in the books of the company before being replenished. Lower the days outstanding better for the company

Days inventory outstanding = 365 / Inventory turnover ratio

Note: Inventory turnover ratio = COGS / Inventory

2. Days payable outstanding: This ratio signifies that for how many days it takes for the company to pay the creditors.higher the days outstanding better for the company

Days payable outstanding = 365 / Payable turnover ratio

Note: payable turnover ratio = Purchase / Account payable

3. Current ratio: This ratio signifies the capacity to meet the short term obligations. The ratio should be greater than 1.

Current ratio = Current assets / Current liability

These three can be the major ratio to evaluate the performance of the company against the competitor, however, there are various profitability ratios that can be used as well.