Basic evaluation over Australia Retail Food Group 2014 Annual Report
Before we take decisions on purchasing a company’s share, we can evaluate the business’ performance in three simple accounting perspective: the business’ ability to cover its debts,its profitability, and some share price indicator. I have subtracted some part of the Retail Food Group( will abbreviate as RFG for convenience) 2014 report, and provided the basic analysis to it.You can find the report at the following link:
The company’s short-term liquidity and long-term solvency are important. It is hinged on the risk allocated to invest on the company. In this sector, we are going to use five basic ratio to determine RFG’s ability to pay its debts. For the short-term liquidity, there are three ratios listed below:
These two ratios indicate RFG is capable of pay off its current liability by its current twice. The decrease on Quick ratio was caused by the inventory value, which should not be a problem since these figures are pretty healthy.However I would also check the inventory turnover ratio in case the stock stacks up which may cause liquidity issue.
Hence the number of days inventory is held is 96 (365/3.8).This might look a bit long but RFG’s major inventory is store held for sale. Therefore it is a considerable fast turnover ratio. I will skip the Accounts Receivable Turnover and the Days’ sales in receivables because RFG is a large company with its efficient debt recover process.
In addition, we will measure the long-term solvency ability for RFG.
Only 22 percent of assets are financed through liabilities, which is excellent.But I still want to see RFG’s performance on cover interest expenses.
RFG can cover its interest expense by its profit for 12 times. Now we know that RFG is on a decent position for meeting its financial obligation, so the risk on investing this company is fairly low.
We will discuss the profitability of RFG and its ordinary shares tomorrow.
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