Financial Proj

Introduction

This is a financial analysis of two companies both incorporated in the United States. The corporations are GoPro Inc. and Dollar Tree Inc. the financial statements on which the financial health analysis relied on are the reports for:

(1)Financial statements for the period ending June 30 2014 for GoPro Inc. and

(2) Financial statements for the period ending May 22, 2014 for Dollar Tree Inc.

The ratios on which the analysis is done are those relating to the liquidity of the firm which measure how the firm can meet its obligations as and when they fall due, activity ratios covering how efficiently the firm is in converting its assets into money, profitability ratios, leverage and coverage ratios.

Liquidity

Dollar Tree Inc. has a current ratio of 2.12 and a quick ratio of 0.68 while the ratios are 1.41 and 1.03 respectively for GoPro. By looking at the ratios Dollar tree has a higher ability to pay back its short-term assets than GoPro. However, given that in both cases each and every ratio is greater than unity; both the firms are able to meet their debt obligations when they come due. This suggests that both of the companies are in good financial health. However, the quick ratio for GoPro is less than one and this is pointer that exclusive of the inventories, it may not be able to meet its obligation as and when they fall due. However, we cannot rule out its ability since it can have a variety of ways of seeking funding (Weygandt, 2006).

Activity

The inventory turnover of 1.9 and 6.0 for Dollar Tree and GoPro respectively point out that it takes Dollar Tree a shorter time than GoPro to sell and replace its inventories. GoPro is less likely to hedge against slow-moving stock and this may interfere with its cash flow systems. As for the receivables turnover Dollar Tree has 21.6 and GoPro has 9.8. Again, GoPro needs to reassess its credit policies to ensure the timely collection of its finances that are not earning interests. As for Days Sales Outstanding, it takes Dollar tree 17 days compared to GoPro’s 37.4. this implies that GoPro is likely to suffer revenues flow interruptions hence this may compromise its financial health.

The fixed asset turnover and total assets turnover for Dollar tree and GoPro are 1.8 and 0.7 and 5.2 and 1.2 respectively. Again, Dollar is more effective in using its investments in fixed assets and total assets in general to generate revenues. GoPro is less effective in marshaling its assets to generate revenues which again may impose financial health challenges (Bodie & Marcus, 2014).

Profitability

Dollar Tree has a gross profit margin and operating profit margin of 34.8% and 11.6% while GoPro has 41.0% and 0.00% respectively. Dollar Tree is more financially healthy as it has a higher proportion of money left over from revenues after taking into account the costs of goods sold and is more operationally efficient and has better pricing strategy than GoPro.

As for the return on assets and returns on equity, Dollar Tree has a 4.7% and 10.5% compared to GoPro’s -2.2% and -7.1 for ROA and ROE. Dollar Tree is more efficient at using its assets to generate earnings than GoPro. It is thus able to use its earnings to fulfill the financial needs implying it is financially healthy. GoPro is registering losses on equity and assets and is no financially healthy (Bodie & Marcus, 2014).

Leverage

Dollar Tree Inc. has a Debt/Net Worth and Debt ratio of 0.6 and 55.4% compared to GoPro’s 0.3 and 68.2%. Dollar is more aggressive in its financial policy as it finances majority of its operations by debt and is more likely to get higher returns as it will hardly experience cash flow interruptions as compare to GoPro. As for the debt ratio, Dollar tree has a lower value than GoPro implying that GoPro is more at financial risk than Dollar Tree as it may be a victim of shareholders’ unrest as they may not be able to meet their obligations.

Coverage

Dollar tree has a time-interest earned ratio of 28.6 compared to nothing for GoPro. The implication of this for GoPro is that it cannot meet its obligations as and when they fall due. The danger with this scenario is that the company could be forced into bankruptcy and this is a serious and undesirable antecedence. This ratio is so much dependent on the company’s ability to sustain its earnings (Weygandt, 2006).

Conclusion

Based on all the ratios it is apparent that GoPro is not financially healthy. This is based on its low turnover ratios, high leverages, zero coverage, low profitability, and liquidity and activity ratios. Also, based on the financial statements, dollar Tree Inc. is financially healthy and seems to promise good returns on any investment made. However, it is important to put a disclaimer that the financial statements are prone to human errors and some are based on approximations that do not apply the real situation that exists within the corporation.

References

Bodie, Z., & Marcus, A. K. (2014). Essentials of Investments, 5th ed. . McGraw-Hill Irwin. p. 459. ISBN 0-07-251077-3.

Weygandt, J. J. (2006). Accounting Principles (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 801-802.