Company Selection And Stock Watch

Company Selection Stock Watchcompany Selection And Stock Watchnodat

Company Selection Stock Watchcompany Selection And Stock Watchnodat

Company Selection & Stock Watch Company Selection and Stock Watch No. Date Stock Name Stock Symbol Current Price Exchange Traded On Financial Facts 1 07/29/14 Puma Biotechnology PBYI $222.00 NYSE Trade Value 147.24m Market cap 6.69b Share Volume 30,117,/29/14 Birks Group Inc. BGI $1.47 AMEX Market cap $26.23m Share Volume 17,840,568 P/E ratio 39./29/14 GoPro Gpro $44.07 NASDAQ Market cap $5.43b Revenue per employee $1.53m P/E ratio 76./29/14 Dollar Tree DLTR $54.44 NASDAQ Revenue per employee: $91,245 P/E Ratio: 19.21 Market cap $11.35b 5 7/29/14 El Pollo Loco Holdings LOCO $29.90 NASDAQ 2013 Sales Growth: 7.19% Revenue per employee: $70,567 Market cap: $990.13m.

Introduction

This analysis focuses on the financial health of two U.S.-incorporated companies, GoPro Inc. and Dollar Tree Inc., based on their latest financial statements. The analysis employs key financial ratios across liquidity, activity, profitability, leverage, and coverage to evaluate their financial stability and performance.

Liquidity Analysis

Liquidity ratios provide insight into a company's ability to meet short-term obligations. Dollar Tree exhibits a current ratio of 2.12 and a quick ratio of 0.68, indicating it holds more than twice its short-term liabilities in current assets, with a significant portion in inventories. Conversely, GoPro's current ratio of 1.41 suggests a decent ability to cover short-term liabilities, but its quick ratio of 1.03, which excludes inventories, indicates a weaker liquidity position and limited immediate liquidity (Weygandt, 2006). While both companies are above the unity threshold, Dollar Tree's higher ratios imply a more robust short-term financial position.

Activity Ratios

Activity ratios assess operational efficiency. Dollar Tree's inventory turnover of 6.0 demonstrates rapid inventory movement, reducing the risk of obsolescence and aligning with its retail model of high-volume sales. GoPro's inventory turnover of 1.9 indicates slower inventory movement, risking excess stock. Receivables turnover underscores this disparity; Dollar Tree's 21.6 suggests prompt collection of receivables, whereas GoPro's 9.8 points to slower collection and potential cash flow issues (Bodie & Marcus, 2014). Days Sales Outstanding (DSO) further emphasizes this, with Dollar Tree taking only 17 days to collect receivables compared to GoPro's 37.4 days, which could impair cash flow stability for GoPro.

Asset Utilization

Fixed asset turnover and total asset turnover ratios illustrate asset efficiency. Dollar Tree's ratios of 1.8 and 5.2 indicate effective utilization of assets to generate revenue, characteristic of retailers with extensive physical stores and inventories. In contrast, GoPro's lower ratios of 0.7 and 1.2 reveal less efficient asset use, possibly due to a reliance on high-tech equipment and intellectual property that do not generate revenue proportionally (Bodie & Marcus, 2014). This inefficiency could hinder its overall financial performance.

Profitability Ratios

Profitability metrics shed light on operational effectiveness. Dollar Tree’s gross profit margin of 34.8% and operating margin of 11.6% surpass GoPro's 41.0% gross margin but zero operating profit margin, reflecting GoPro's struggle with operational expenses and profitability. Furthermore, Dollar Tree's return on assets (ROA) of 4.7% and return on equity (ROE) of 10.5% demonstrate its ability to generate earnings on its assets and equity, while GoPro's negative ROA (-2.2%) and ROE (-7.1%) indicate losses and poor profitability, suggesting financial instability (Weygandt, 2006).

Leverage and Coverage Ratios

Leverage ratios assess financial risk. Dollar Tree employs more debt relative to equity, with a debt ratio of approximately 55.4% and a debt-to-net worth ratio of 0.6, signifying moderate leverage. GoPro's debt ratio is higher (68.2%), implying greater financial risk, particularly given its lower earnings (Bodie & Marcus, 2014). Coverages ratios clearly favor Dollar Tree; its times-interest-earned ratio of 28.6 indicates ample capacity to meet interest obligations, contrasting sharply with GoPro, which exhibits no coverage ratio, highlighting a significant risk of insolvency if earnings decline.

Conclusion

Overall, the financial ratios and metrics analyzed suggest that Dollar Tree maintains strong financial health through high liquidity, efficient asset utilization, profitability, and manageable leverage, aligning with its retail-focused business model. Conversely, GoPro exhibits signs of financial distress including low profitability, inefficient asset use, high leverage, and inadequate coverage, indicating fragile financial stability. These findings support the conclusion that Dollar Tree is better positioned for sustained growth and profitability compared to GoPro, which faces considerable financial challenges. Nonetheless, it is crucial to interpret these ratios within the context of industry-specific characteristics and potential external economic impacts that may influence future performance (Bodie & Marcus, 2014; Weygandt, 2006).

References

• Bodie, Z., & Marcus, A. K. (2014). Essentials of Investments (5th ed.). McGraw-Hill Irwin.
• Weygandt, J. J. (2006). Accounting Principles (4th ed.). John Wiley & Sons.
• Gibson, C. H. (2012). Financial Reporting & Analysis (12th ed.). Cengage Learning.
• Palepu, K. G., & Healy, P. M. (2013). Business Analysis & Valuation: Using Financial Statements (5th ed.). South-Western College Publishing.
• Turner, J. (2015). Financial Analysis and Decision Making. Pearson.
• Higgins, R. C. (2012). Analysis for Financial Management (10th ed.). McGraw-Hill.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate Finance (10th ed.). McGraw-Hill.
• Brigham, E. F., & Ehrhardt, M. C. (2013). Financial Management: Theory & Practice. Cengage Learning.
• Chandra, P. (2015). Financial Management: Theory and Practice. McGraw-Hill Education.
• Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill.