Take the role of either a potential investor or creditor and perform a limited ratio analysis of two grocery store chains – Albertsons and Kroger. Additional details related to requirements are discussed on page two.

Below are links to the two companies’ annual reports. All ratios should be based on the most recent year (or years when computing averages) of these financial statements.

Albertsons – the link below takes you to their 10K. The Consolidated Balance Sheet  and the Consolidated Statements of Operations and Comprehensive Income (i.e. Income and Comprehensive Income Statement)

http://d18rn0p25nwr6d.cloudfront.net/CIK-0001646972/11dcaae0-aae8-4c49-a76c-eb24f919cf51.pdf

Kroger – the link below takes you to their Annual Report and Proxy Statement. The Annual Report is in the second section of the document (immediately following page 62). The Consolidated Balance Sheet is on page 45 of this second section and the Consolidated Statements of Operations (i.e. Income Statement) is on page 46.

http://s1.q4cdn.com/137099145/files/doc_financials/2019/ar/2019-Annual-Report.pdf

Other relevant information that will assist you in computing ratios:

1). Assume all Sales are on Account for both companies.

2). If using earnings per share, do not compute the ratio, but use the amounts given for Basic Earnings per Share on each company’s Income Statement.

3). If computing Book Value Per Share use the weighted average number of shares outstanding reported on each company’s income statement for Basic earnings per share.

4). For Kroger

• Add ‘store deposits in transit’ to ‘cash’ if computing the Acid test ratio.
• Use FIFO Inventory when computing ratios using inventory (i.e. ignore the adjustment for LIFO reserve).
• For net income – use the line: Net Earnings Attributable to the Kroger Company.
• If computing the Price Earnings ratio, use a stock price of $31.90 per share.

5). For Albertsons

• Ratios requiring net income – be sure to use the line Net Income (NOT Comprehensive Income).
• If computing the Price Earnings ratio, use a stock price of $15.73 per share.

REQUIREMENTS:

1). Role and Ratios           

Decide whether you are analyzing these companies as a potential investor or potential creditor, then select NINE of the ratios presented in this chapter that you believe would be of interest to an individual in this role. Additionally -

• Do not use either the dividend payout or dividend yield ratios. Albertsons went public in 2020 and recently declared its first dividend as a public company. Thus comparisons using these ratios would provide limited information for evaluation.
• You must use at least one ratio from each of the four categories identified in the text book.
• Do not count the Accounts Receivable Turnover and the Average Collection Period as two separate ratios –they measure the same thing (the first in times per year the second in number of days)
• Do not count the Inventory Turnover and the Average Sale Period as two separate ratios – they measure the same thing (the first in times per year and the second in number of days).
• A summary of the ratio categories and ratio formulas is presented on pages 678-679 of the text. Be aware that computations of some ratios might vary slightly from source to source (i.e. if you were to Google a specific ratio the formula might be slightly different). For this assignment, ALL ratios will be graded using the formulas in the text (regardless of alternate computations you might find elsewhere). You must show your work for reach ratio computed.

Grading - 1 per ratio, per company, graded using formulas presented in the textbook.

2). Analysis    

Write a paragraph (no longer than ½ page) explaining which company you prefer. Your paragraph should include:

• Whether you are a potential investor or creditor.
• A brief summary of why you chose the specific ratios you did (why are they important to an individual in your role).
• A brief summary of how you arrived at your preference. Do not do a ratio by ratio comparison stating which company performs better, but a clear summary, discussing important points that influenced your decision.
• When doing this assignment, your selection of role and ratios and your analysis should be completely your own. While there will logically be some overlap among students with regard to ratios selected, this section is open-ended enough that there should be no notable similarities in writing. DO NOT COPY OR PARAPHRASE from the text or from anyone else or the assignment will receive a zero.

Grading - based on the clarity and cohesiveness of your summary.

3). General presentation    

Grading – based on an overall document that is clearly presented, with well-labeled ratios for each company with well documented computations.