Kroger Co.s financial position and the role of profitability and Assignment

Kroger Co.s financial position and the role of profitability and shareholder equitys ratios in it - Assignment Example This essay analyzes The Kroger Co. that is rated among the top five players in thirty-eight out of the forty-two major markets. Most of its competitors have experienced negative growth trend in the recent past however, Kroger Co. has successfully managed to keep a smile on its shareholder’s face by steady sales growth in last twenty-nine quarters. Kroger Co. has a substantial customer base and it and it takes great pride in its loyal customer base as approximately one half of US households have a Kroger loyalty card. This has been a result of Customer 1st strategy that Kroger Co. believes in. It has also been popular among shareholders for its consistent dividend payments. In 2010, it gave out $250 million along with maintaining high investment-grade credit rating and reducing its leverage which eventually resulted in capital gain. Profitability ratios are an indicator of a company’s performance over the year. Profitability ratios include operating profit margin, net pr ofit margin, return on asset, and return on equity. Sales increased by 7.1% to $82.2 billion in 2010, which is more than its competitors. Operating profit margin is calculated by dividing the operating profit by the net sales. The operating profit for the year was $2182 M, as compared to net sales of $82189 M. The operating profit margin was 2.65% for the year. Net profit margin is calculated by dividing the net profit after tax by the net sales amount. Net profit for the year was $1116 M and it constituted 1.36% of the sales. ... Kroger has been trying to reduce its long term debt in the past few years which makes the company less risky to benefit shareholders. The company has kept its shareholders happy by giving a return of 21.07%. Shareholder’s Equity Ratio: The most important ratio in determining the impact of equity on the company is to find the percentage of equity to total assets. This ratio will give us an idea of the role of shareholder in the company’s operation. Also, companies take up debt to keep the larger portion of the profit with them (HORNE, James C. Van and Wachowicz, John M., 2008). This is a regular practice of profitable and established firms. Likewise, Kroger Co.’s asset base is majorly financed by debt and only 22.5% of its assets are sourced by shareholder. This is one of the reasons of high return on equity. This ratio indicates that Kroger Co.’s business model is profitable and becoming its shareholder will be profitable in future. Use and Application of Financial Reports Financial statements are an integral document for any company. It is used by stakeholders to assess the financial position and performance of the company. These stakeholders can be classified as internal and external (BRIGHAM, Eugene F. and Ehrhardt, Michael C., 2010). The internal users of these statements are management, board of directors and sometimes the employees as well. The external users include investors, lenders, suppliers and customers, government department and agencies, competitors, media, labor unions, supporters and opponents. Following are the three financial statements that is of prime importance for an investor, Balance sheet: It is also known as statement of financial position. It presents the picture of the company’s