A.Assume that you are a supplier considering selling on credit to the company. To analyze Best Buy’s short-term liquidity, calculate the Current, Acid Test, A/R Turnover, and Inventory Turnover ratiosfor the two most recent years (Fiscal 2011 vs. Fiscal 2010). (Although it is best to include average A/R and average inventory in the turnover ratios, for this assignment it is O.K. to use year-end A/R and inventory.)
1. Show how you calculated these ratios by referencing the numbers reported in Best Buy’s annual report.
B.Best Buy reported that it does not anticipate financing through the sale of additional equity. Assume that you are a prospective long-term creditor for Best Buy. Perform a long-term solvency analysis based on the ratio ofLiabilities to Stockholders Equity (Debt to Equity- see Balance sheet page 70 and the Consolidated Statements of Changes in Shareholders’ Equity page 73)and management’s Discussion (p. 50 +) and Footnotes 6 & 8 beginning on page 100.
1. Show how you calculated these ratios by referencing in the numbers reported in Best Buy’s annual report.
2. Based on Best Buy’s Debt to Equity ratio, would you extend long-term credit to Best Buy? Clearly explain why or why not.
C.Review Best Buy’s profitability by calculating Return on Equity (ROE)and Return on Assets (ROA). Use this ratio for ROA:
Net Income
Average Assets
1. Show your calculations for both ROE and ROA.
2. Explain in general terms what the ratios measure, and explain what Best Buy’s ratios tell you about its profitability.
