RATIO ANALYSIS FOR THE KROGER COMPANY
In this portion of the report, a ratio comparison analysis will be conducted of the Kroger
Company and compared with the ratios of the industry norm. In this evaluation, an
acknowledgement of the key drivers to the business will also be identified and based upon
those ratios, a conclusion will be suggested in determining whether the Kroger Company is
a week or strong
industry performer.
The suggested ratio comparisons will include the following segments under the financial
strength heading: the current ratio, the quick or acid test ratio, the long term debt to
equity ratio, and the total debt to equity ratio. The gross profit margin and operating
profit margin ratios will be examined under the profitability section. Management
effectiveness will look at the return of assets, the return on investments, and the return of
equity ratios. The fourth area to be examined will include efficiency and be comprised of
accounts receivable turnover ratios, inventory turnover ratios, and asset turnover ratios.
The current ratio is a commonly used measure of short run solvency, which is the ability of
a firm to meet its debt requirements as they come due. Current liabilities are used because
they are considered to represent the most urgent debts, requiring one year or one operating
cycle. The available cash resources to satisfy these obligations must come primarily from
cash or the conversion to cash of other current assets. This ratio is determined by dividing
the current liabilities into the current assets. For the Kroger Company, the ratio is .89