Best Buy Co, Inc., is a leading retailer specializing in consumer electronics. A
ID: 2585865 • Letter: B
Question
Best Buy Co, Inc., is a leading retailer specializing in consumer electronics. A condensed income statement and balance sheet for the fiscal year ended February 1, 2014, are shown belovw Best Buy Co., Inc. Balance Sheet At February 1, 2014 ($ in millions) Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable, net Merchandise inventories Other current assets $ 2,678 223 1,308 5,376 900 Total current assets Noncurrent assets 10,485 3,528 Total assets 14,013 Liabilities and Shareholders' Equity Current liabilities Accounts payable Other current liabilities $ 5,122 2,314 Total current liabilities Long-term liabilities Shareholders' equity 7,436 2,588 3,989 Total liabilities and shareholders' equity$ 14,013Explanation / Answer
1-a.Current ratio
Current ratio is considered as comparison between current assets with the current liabilities
Current ratio=Current assets/current liabilities
Current ratio=Total current assets/total current liabilities
=$10485/$7436
=1.41
The Current ratio is better than Industry ratio of 1.23
1-b Acid-Test Ratio
The another name of acid test ratio is quick ratio.It measures the ability to repay the current liabilities with its quick assets
Hence Acid Test Ratio=(CAsh+maeketable securities+Accounts receivable)/Current liabilities or
(Total current assets-Inventory-Prepaid Expenses)/Current liabilities
We use 2nd one
=($10485-$5376)/$7436
=0.68
Best buy acid test ratio is better than Industry ratio 0.60
1-cDebt Equity ratio
Debt Equity ratio is a ratio used to mention the proportion of Debt to be covered by Shareholders
Debt equity ratio=Debt/Equity=Total Liabilities/Shareholders funds
=(Current liabilities+Non current liabilities)/Shareholders funds
=($7436+$2588)/$3989
=$10024/$3989
=2.52 times
Best buy ratio of Best buy is not better than Industry debt equity ratio of0.70
1-d Interest earned ratio is also known as Interest Coverage Ratio
Interest Coverge ratio=Earnings before interest and taxes/Interest Expense
Given $100 as interest expense
=$1087/$100
=10.87 times
The capacity of Best buy is better than Indutry of5.66 times
Hence apart fromDebt equity ratio BEst buy is good is other aspects