Barnes & Noble Case

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Now that the Pro Forma Income Statement and Balance Sheet are complete, it is possible to perform a ratio analysis. Financial statement analysis is a study of accounting ratios among various included in the balance sheet (Byrd, Hickman, & McPherson, 2013). Ratio analysis is also a method for determining the current and prospective performance of a company. Below is the ratios analysis for Barnes & Noble using the fiscal year 2014.

Ratio Analysis for Barnes & Noble 2014

Debt ratios

debt ratio

leverage ratio

0.19

times interest earned ratio

1.16

Liquity ratios

current ratio

1.15

quick ratio

0.28

Profitability ratio

return on assets ROA

-1.28

return on equity ROE

-6.78

Asset Management

inventory turnover

3.42

asset turnover

1.73

Per share measures

earnings per share EPS

5.34

book value per share BVPS

11.13

Measures of relative value

price earnings ratio P/E

5.34

price-to-book (P/B)

11.13

It is also necessary to calculate the expected Return on Equity or ROE. ROE reveals how much profit a company earned in comparison to the total amount shareholder equity. Generally, a business that has a high return on equity is more likely to be one that is capable of generating cash internally (Chen, 2013). In order to reach this information, the Net Profit Margin (NPM), asset turnover and equity multiplier must be realized. NPM is found by dividing net income by revenue. Asset turnover is calculated as revenue divided by assets. Finally, equity multiplier is reached when assets are divided by shareholder equity. ROE is determined by multiplying all three sums together. The calculations for each are below:

ROE

NPM

22224.8/6381357

0.003483

Asset turnover

6381357/1980438

3.222195

Equity multiplier

1980438/658696

3.006604

ROE

0.033743

In addition to all of the information above, it is still necessary to review the capital structure of Barnes & noble. Capital structure is otherwise known as the mixture of a company’s long-term debt, short-term debt, common equity, and preferred equity (El-Dalabeeh, 2013).. When capital structure is referenced, it is most likely referring to a firm’s debt-to-equity ratio, which provides insight into how risky a company is. Based on the financial filings of Barnes & Noble, the company had 36.8 million in outstanding letters of credit. Most of the investing activities consist principally of capital expenditures for the maintenance of existing stores, new store construction, digital initiatives, and enhancements to systems and the website (bn.com, 2015).

Barnes & Noble states that “based upon current operating levels and capital expenditures for the fiscal year, management believes cash and cash equivalents on hand, funds available under its credit facility, cash received and committed to NOOK media and short-term vendor financing will be sufficient to meet the company’s normal working capital and debt service requirements for at least the next twelve months. The company regularly evaluates its capital structure and conditions in the financing markets to ensure it maintains adequate flexibility to successfully execute its business plan” (bn.com, 2015).

Based on the information given, and calculations performed, it appears that Barnes & noble is a low credit risk. Barnes & Noble has seen several drastic changes in company value over the past year. Based in gathered information, Pro forma statements such as the balance sheet and the income statement show the company to be in relatively stable condition. Other indicators (such as the ROE) also show that Barnes & Noble have had increases and decreases in revenue and stock value over the past fiscal year, but now the company seems to be on the rise yet again.

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References

Bn.com. (2015). Our company history. Retrieved online from: http://www.barnesandnobleinc.com/our_company/history/bn_history.html

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance. San Diego, CA: Bridgepoint Education Inc.

Chen, H. (2013). Maximum return on equity (MRoE) model and its application. Journal of Accounting, Finance & Management Strategy, 8(2), 75-106. Retrieved from http://search.proquest.com/docview/1509762924?accountid=32521

El-Dalabeeh, A. (2013). The role of financial analysis ratio in evaluating performance. Interdisciplinary Journal of Contemporary Research in Business, 5(2), 13-28. Retrieved from http://search.proquest.com/docview/1426054034?accountid=32521

McGrath, Maggie.(2015). Barnes & Noble shares drop after ending Nook deal with Microsoft. Forbes:Investing. Retrieved online from: http://www.forbes.com/sites/maggiemcgrath/2014/12/04/barnes-noble-shares-drop-after-ending-nook-deal-with-microsoft/