Kroger Co. Harvard Case Solution & Analysis

Cash flow liquidity

The cash flow liquidity ratio shows the amount of cash being held by the company to pay off short term obligations when they fall due. This shows the amount of available cash to pay liabilities in contingent situations. The current cash flow liquidity ratio of the company is 0.21 times. It has been in the range of 0.2 to 0.29 times over the past years. This is very low and the company might face difficult situations in the future if it could not increase the amount of cash held. The company needs to find out new avenues from where it can generate excess cash. This would improve the cash position and the cash flow liquidity of the company.

Inventory turnover period

The inventory turnover period shows us that how many days it takes to sell the inventory which would be equal to the yearend value of the inventory. The current inventory turnover period of Kroger Corporation is 29.17 days and it has been decreasing over the previous years. This means that the company is now taking less time to sell its inventory and this would improve the liquidity of the company. If we compare this ratio with the other competitors, most of them have higher inventory turnover periods. Kroger takes fewer periods to sell its inventory.

Average payment period

The average payment period shows that how long the company takes to pay its suppliers for the entire inventory that has been purchased. The longer the ratio, the more beneficial it is for the company. The current average payment period of the company is 20.95 days. This is lower than the industry average of 30 days. This shows that the company pays its payables as they fall due. The company is maintaining good relationships with all of its suppliers by paying early.

Account receivable period

The accounts receivable period shows how much time the company takes to convert its receivables to cash. This shows how well the company is chasing its customers. The current accounts receivable period of the company is around 3.9 days. This ratio has also been decreasing over the previous years. This shows that the receivables collection of the company is being managed well. Regarding the competitors, Kohl Corp and Dollar General have accounts receivable period of 0 days, which means they are not giving any credit to their customers. Kroger Company should take further steps to reduce this period further.

Debt to worth ratio

The debt to worth ratio shows how much debt the company has as a percentage of the total equity. This is the debt which the company has used in the business in order to acquire the long term fixed assets. However, higher debt will lead to higher commitment of interest and principal repayments and this would increase the overall risk of the company. The current debt to worth ratio is around 4.85 times. Most of the competitors have debt to equity ratio of less than 1, which shows that they are managing their long term debt very well. Kroger needs to repay some of its debt so that the risks of default on principle and interest payments are minimized.

Profitability Ratios

Gross margin

The gross margin shows the percentage of gross profit of sales after deducting the cost of sales for the company. The current gross profit margin for the company is around 21%. Over the past years the company had maintained the same gross margin. However, the company needs to increase it further by either increasing the sales for the company or controlling the cost of sales. Wal-Mart has a higher gross margin than Kroger. Same is the case with Dollar General. This shows that the industry has potential to improve this ratio.

Net Margins

Net margin shows how much of the sales have been converted into profits as a percentage. The current net profit margin of the company is 2%. Over the previous years, the company had similar average net profit margin ratios. However, the net margins of the competitors are high. This shows that Kroger is having difficulty to generate good profit from its sales. The net margins of Kroger’s competitors are in the range of 4% to 5%. This shows that the ability of the company to convert its sales into profits is not good as compared to Dollar, Kohl and Macy. This needs to be improved and emphasis should be placed to increase the sales for the company.............................

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