1 answer

Urban Outfitters (URBN) Ratios Industry Average Ratio Three Year Company Ratio Results 2018 2017 2016 Year(s)...

Question:

Urban Outfitters (URBN)
Ratios Industry Average Ratio Three Year Company Ratio Results
2018 2017 2016
Year(s) Year Year Year
1. Working Capital $                                  550,714.00 $                                  618,543.00 $                                  528,469.00 $                                  505,130.00
2. Current Ratio 2.58091217 2.717154247 2.497384736 2.528197527
3. Acid Test 1.923964277 3.378452809 1.172230597 1.221209424
4. Fixed Assets to Long-term Liabilities 2.936774112 2.79009679 3.667347068 2.352878479
5. Debt to Equity Ratio 2.006723868 0.498760705 0.448983462 5.072427438
6. Return on Equity 15% 8% 19% 18%

1. Discuss what each ratio reveals about the company?
2. Discuss how each ratio improved or worsened over time? Explain why you think this happened.
3. Compare each company ratio results with the industry average ratios. What do the numbers reveal?


Answers

Answer.!

1) Working Capital the sum of excess money invested in current assets over the current liabilities of business. That is working capital = Current assets - Current Liabilities. It is required to meet day to day operating expense of business.

2) Current Ratio reveals the short term paying capacity of business. This means this ratio helps us to decide-whether the business has sufficient current assets to meet out its short term obligation.

3) Acid Test Ratio is also know as Quick Ratio. It shows that whether the business is able to pay its current liabilities out of its liquid or quick assets quickly or not.

4) Fixed Assets to long term liabilities Ratio reveal that how Long term liabilities are secured against the fixed assets of the business.

Higher is the ratio better is the security and the solvency of the business.

5) Debt Equity Ratio shows the Debt and equity mix of the business while financing the business needs.. The higher is the ratio, the riskier is the business. This is also called trading on equity.

6) Return on equity is the profitability ratio of stockholders. This reveals that how much return in terms of percentage- the owners are able to earn on their equity. The higher is the ratio the better is the performance of the company.

Answer.2:

1) The working Capital Ratio is improving over the time.

This might have happened due to increase in current asset or decrease in the current liabilities.

2) The current ratio has gone up in current year 2018 as compared to previous years 2017 and 2016. This would happened due to increase in operating activities like more production and sales. It might have also happened due to better planning and control over the current asset and current liabilities of the business.

3)The acid test ratio has tremendously improved in year 2018 as compared to 2017 while it has worsened in the year 2017 as compared to year 2016. This would has happened due to increase in Liquid or quick assets and reduction in current liabilities.

4) FA to LTL has improved year to year. The reason for improvement might be acquisition of additional fixed assets or decrease in long term liabilities or both simultaneously.

5) Debt equity ratio ratio has worsened over the year, It means the debt portion is sources of financing the business has gone down.

Although, it might be good from solvency point of view but not good from profitability point of view. From risk point of view it is better.

6) ROE has improved in year 2107 as compared to 2018 has badly gone down to 8% from 19% in year 2017 and 18% in year 2016. This might be on account of no proper mix of debt and equity ratio and as well as in inefficient operating performance. This means reduction in sales or increase in expenses.   

3.

1) The company working capital ratio is slightly higher than industry's average ratio in year 2018. It means that there is over investment.

In year 2017 and 2016 it is similar to the industry' average ratio.

2) The current ratio of of the company in the current year is marginally higher than the average of the industry. There is slightly more investment in current assets as compared to industry and this company might have no short term liquidity.

3) The debt equity ratio of this company is poorer with respect to industry. Industry D/E ratio is 2:1 as compared to 0.5:1 and 0.44:1. This company has not proper balance mix of debt and equity like that of industry in the year 2018 and 2017 and it is very conservative. Additionally, this company is very highly geared in the year 2016 and it is very risky.

4) The Fixed assets to Long term debt ratio of the industry is better in the year 2018 and vice versa in the year 2017 and 2016.

From solvency point of view, Industry is more secured than the company in the year 2018 but vise versa in the year 2017 and 2016.

5)Return on equity in the year 2018 of this company is very poor as compared to industry' average return on equity.However, in Previous year 2017 and 2016, the company return on equity is better than the return on equity of the industry.

.

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