Whole Foods Ratio
Kroger and Whole Foods Financial Ratio Analysis
Corporate Finance Case 1
Financial Analysis of Whole Foods and Kroger
Kroger and Whole Foods are the two giants in the grocery industry; however, their capital structure and financial measures paint vastly different pictures. The liquidity ratios, which measure short term solvency of the company, were calculated for both companies. The current ratio for Kroger was calculated to be .76 compared to a current ratio for Whole Foods of 1.60. At a glance, Whole Foods is more able to pay their short term debt obligations compared to Kroger. In the same vein, Whole Foods has a much higher quick ratio at 1.20 compared to .25 for Kroger. The capital structure of the two companies is the main reason for the distinct differences in the liquidity ratios. Kroger has financed the company’s expansions with debt; whereas, Whole Foods has financed their expansions with equity. One of the reasons why Whole Foods’ quick ratio is higher than Kroger’s quick ratio is due to inventory management. Whole Foods is an industry leader at inventory management. Whole Foods inventory consists of two-thirds perishable foods, which requires management to have outstanding inventory management to be profitable. Due to the outstanding inventory management of Whole Foods, the quick ratio for the company is higher compared to the much larger Kroger.
Activity ratios are a measure of a company’s asset management. When comparing Kroger to Whole Foods, Kroger has a higher total asset turnover and fixed asset turnover compared to Whole Foods. In fact, Kroger is the industry leader in asset turnover consistently having the highest asset turnover ratios in the industry. The reason for Kroger’s high asset management ratios for total asset turnover and fixed asset turnover is due to sales. Sales are calculated into each ratio. By generating massive sales, Kroger is able to complete with slim profit margins due to exploiting
Corporate Finance Case 1
Financial Analysis of Whole Foods and Kroger
Kroger and Whole Foods are the two giants in the grocery industry; however, their capital structure and financial measures paint vastly different pictures. The liquidity ratios, which measure short term solvency of the company, were calculated for both companies. The current ratio for Kroger was calculated to be .76 compared to a current ratio for Whole Foods of 1.60. At a glance, Whole Foods is more able to pay their short term debt obligations compared to Kroger. In the same vein, Whole Foods has a much higher quick ratio at 1.20 compared to .25 for Kroger. The capital structure of the two companies is the main reason for the distinct differences in the liquidity ratios. Kroger has financed the company’s expansions with debt; whereas, Whole Foods has financed their expansions with equity. One of the reasons why Whole Foods’ quick ratio is higher than Kroger’s quick ratio is due to inventory management. Whole Foods is an industry leader at inventory management. Whole Foods inventory consists of two-thirds perishable foods, which requires management to have outstanding inventory management to be profitable. Due to the outstanding inventory management of Whole Foods, the quick ratio for the company is higher compared to the much larger Kroger.
Activity ratios are a measure of a company’s asset management. When comparing Kroger to Whole Foods, Kroger has a higher total asset turnover and fixed asset turnover compared to Whole Foods. In fact, Kroger is the industry leader in asset turnover consistently having the highest asset turnover ratios in the industry. The reason for Kroger’s high asset management ratios for total asset turnover and fixed asset turnover is due to sales. Sales are calculated into each ratio. By generating massive sales, Kroger is able to complete with slim profit margins due to exploiting