What Is Kroger's Liquidity?

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Liquidity refers to a company’s ability to pay their short-term debts; these ratios also refer to the company’s capability to sell assets quickly to raise cash. However, just because a company has adequate liquidity or cash available to pay its bills, it is not an indication that the company is financially stable. Liquidity usually means that a company is “healthy.” In the case of The Kroger Co., the company’s liquidity is less than adequate. The Kroger Co.’s ratios show that they may not be able to pay their short-term obligations; however, it is understood that as a grocery store they have a high influx of cash which mitigates this low ratio. Research of the grocery industry show that is “normal” for grocery companies’ working capital and…show more content…
Generally speaking, a higher value ratio in comparison to competitors is a sign of strength. However, given that there is a low barrier to entry in the grocery industry, new competitors are constantly entering the market. This competition drives down prices making it difficult to maintain low profit margins. A higher margin means that the company’s cost are low and its earnings are high. The Kroger Co. has a low profit margin ratio, in comparison to the industry “grocery” average, at 2.80% and especially in comparison to Safeway at 9.71% in 2013 alone (attributable to sale of the Canadian affiliate and closed operations in Chicago). The Kroger Co.’s average EPS is 1.84; The Kroger Co. common stock earns on average $1.84 in profits for every outstanding share of stock. This is actually quite low; investors like high EPS because they are willing to pay more for higher profits. Additionally, The Kroger Co.’s gross profit ratio has steadily declined since 2011. Its ratio was 20.59 for 2013; it is lower than Safeway’s and has been so for the three years analyzed. The Kroger Co. has a low profit margin ratio over the course of three years though it did increase in 2013 to 1.55. This is not too from the industry “grocery” average of 2.8% and but it is significantly low compared to Safeway’s 9.71% ratio. The Kroger Co.’s net profit means Kroger generated 1.55 cents of profit on each dollar of sales. However, low profit margins are typical in high turnover such as grocery stores. The Kroger Co. has increased its return on assets in 2013 from the previous two years but this ratio is best viewed in comparison with a competitor. Safeway (3.42, 4.01) and The Kroger Co. (4.79, 2.56) have similar return on assets for 2011 and 2012, Safeway’s jumps to 22.01 in 2013. However, we attribute this to the sale of its stores

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