Part 4 Invest PDF

Preview

Summary

This is the final part of a required project. It is a summary on whether you would invest in Staples or Office Depot based on calculations made....

Description

Joel Kirwan Kreiser Acct 284, 3 4/5/17 Invest We looked at two companies during this project, and now it is time to compare the two. Based on my calculations for this project, I will discuss the profitability, solvency, and liquidity for Staples and Office Depot. I will then touch on which company I would invest in. First, we will look at Staples. Staples has a 1.80% net profit margin. This means that for every dollar they collect, they earn 1.8% of that dollar after expenses are paid for. This is not a very high percentage, and Staples should definitely look at lowering their costs in order to raise this percentage. In respect to Staples’ solvency, we look at Debt-to-assets ratio. This tells us Staples’ ability to pay back its debts. The debt-to-assets ratio is .47. This means that for the total assets, 47% of them were financed as liabilities. Moving on to liquidity, it is best to look at the current ratio. The current ratio for Staples is 1.57, which is not too high or too low. According to Investopedia.com, a positive current ratio means that “In the event of an emergency, the business can pay all of its short-term debts.” Since Staples’ current ratio is positive, they are sitting pretty well. Another factor to look at is the days to sell. This factor shows how many days it takes to sell their inventory. Staples’ days to sell is 49.59. This means on average it takes about 50 days to sell their inventory.

Now let’s take a look at Office Depot. Their net profit margin is .06%, which is much lower than Staple’s. That percentage means they are barely making more than their costs. Next, if we look at the solvency for Office Depot we can see their debt-to-assets ratio of .75 is actually higher than Staple’s. This is risky for Office Depot because it means they have more interest to pay. If they ever went bankrupt, the money would first go to pay off these loans, then it would pay the shareholders. This means less money for shareholders. As for the liquidity of Office Depot, we can look at the current ratio. The current ratio for Office Depot is 1.48. This is lower than Staples’ current ratio, but not by much. Another factor to look at is the days to sell which is 55.43 days for Office Depot. This means it takes longer for Office Depot to sell their inventory than Staples does. In conclusion, based on these ratios and factors, I would choose to invest in Staples and not Office Depot. Staples has higher profitability, solvency, and liquidity. As an investor, these three factors are important in making decisions. Staples is clearly the better business to invest in.

Works Cited Staff, Investopedia. "Liquidity Ratios." Investopedia. N.p., 08 Nov. 2006. Web. 05 Apr. 2017. ....