Indigo Financial Ratios
Indigo Books & Music, Inc.
ABSTRACT
The purpose of this report is to make a recommendation on a long-term investment of Indigo Books & Music, Inc. by looking at its financial health from annual reports and recent news reports. The six ratios considered are current ratio, quick ratio, profit margin, operating ratio, debt-equity ratio, and debt-asset ratio. These ratios were compared over time, against its close competitors, which are Amazon.com Inc. and Wal-Mart Stores Inc., and against a calculated industry benchmark. Based on our findings, we conclude that Indigo is financially healthy. For example, current and quick ratios are both higher than its competitors and its industry benchmark. Operating ratio indicated that Indigo is …show more content…
According to Indigo’s 2013 annual report, it uses estimates that have a significant effect on the measurement of revenues. Estimates based on historical data are made for average gift card breakage rates. Estimates are also made for the cost per point in their reward program. Estimates based on different requirements and factors can alter ratios (Indigo Books & Music, Inc. 2013)
From Table 4, net profit margin for the 52-week period ended March 31, 2013 was calculated to be 0.47%. This indicates Indigo earns $0.0047 for every dollar of sales it makes after taxes. This is a very low profit margin where further decreases in sales or increases in costs can generate a loss for Indigo. In 2012, net profit margin was 7.09%. In 2011, net profit margin was -2.03%. On a historical basis, there is no clear trend for the company’s profit margin. Indigo had a loss in 2011, followed by a large increase in 2012, and then a drop in 2013.
According to a press release from Indigo Books & Music, Inc., revenue decline from last year was due primarily to the phenomenal success last year of popular book series, the continuing growth of eReading, and the company operating nine fewer stores (Indigo Books & Music, Inc. …show more content…
19.07%q
P=60,41761,093×100%=98.89% q=88,873466,114×100%=19.07%Table 9: Indigo’s operating ration compared with industry benchmark
2013
Indigo Books & Music, Inc. 43.71%m
Industry Benchmark 47.84%r r=43.71%+98.89%+19.07%+(409,8321,379,710×100)4=47.84%Table 10: Indigo’s debt-equity ratio and debt-asset ratio compared over three years
Indigo Books & Music, Inc. 2013 2012 2011
Debt ratio 0.39G 0.40H 0.48I
Debt-equity ratio 0.63J 0.67K 0.91L
G=219,924570,246=0.39 H=236,904592,536=0.40 I=243,644511,007=0.48J=219,924350,322=0.63 K=236,904355,632=0.67 L=243,644267,363=0.91Table 11: Indigo’s debt-equity ratio and debt-asset ratio compared with competitors
2013 Debt ratio Debt-equity ratio
Indigo Books & Music, Inc. 0.39G 0.63J
Amazon.com Inc. 0.75M 2.97N
Wal-Mart Stores Inc. 0.60O 1.48P
M=24,36332,555=0.75 N=24,3638,192=2.97 O=121,367203,105=0.60 P=121,36781,738=1.48Table 12: Indigo’s debt-equity ratio and debt-asset ratio compared with industry benchmark
2013 Debt ratio Debt-equity ratio
Indigo Books & Music, Inc. 0.39G 0.63J
Industry Benchmark 0.64R 2.01S
R=G+M+O+3,049,8723,723,0124=0.39+0.75+0.60+0.824=0.64S=J+N+P+3,049,872673,1404=0.63+2.97+1.48+2.974=2.01LIST OF
ABSTRACT
The purpose of this report is to make a recommendation on a long-term investment of Indigo Books & Music, Inc. by looking at its financial health from annual reports and recent news reports. The six ratios considered are current ratio, quick ratio, profit margin, operating ratio, debt-equity ratio, and debt-asset ratio. These ratios were compared over time, against its close competitors, which are Amazon.com Inc. and Wal-Mart Stores Inc., and against a calculated industry benchmark. Based on our findings, we conclude that Indigo is financially healthy. For example, current and quick ratios are both higher than its competitors and its industry benchmark. Operating ratio indicated that Indigo is …show more content…
According to Indigo’s 2013 annual report, it uses estimates that have a significant effect on the measurement of revenues. Estimates based on historical data are made for average gift card breakage rates. Estimates are also made for the cost per point in their reward program. Estimates based on different requirements and factors can alter ratios (Indigo Books & Music, Inc. 2013)
From Table 4, net profit margin for the 52-week period ended March 31, 2013 was calculated to be 0.47%. This indicates Indigo earns $0.0047 for every dollar of sales it makes after taxes. This is a very low profit margin where further decreases in sales or increases in costs can generate a loss for Indigo. In 2012, net profit margin was 7.09%. In 2011, net profit margin was -2.03%. On a historical basis, there is no clear trend for the company’s profit margin. Indigo had a loss in 2011, followed by a large increase in 2012, and then a drop in 2013.
According to a press release from Indigo Books & Music, Inc., revenue decline from last year was due primarily to the phenomenal success last year of popular book series, the continuing growth of eReading, and the company operating nine fewer stores (Indigo Books & Music, Inc. …show more content…
19.07%q
P=60,41761,093×100%=98.89% q=88,873466,114×100%=19.07%Table 9: Indigo’s operating ration compared with industry benchmark
2013
Indigo Books & Music, Inc. 43.71%m
Industry Benchmark 47.84%r r=43.71%+98.89%+19.07%+(409,8321,379,710×100)4=47.84%Table 10: Indigo’s debt-equity ratio and debt-asset ratio compared over three years
Indigo Books & Music, Inc. 2013 2012 2011
Debt ratio 0.39G 0.40H 0.48I
Debt-equity ratio 0.63J 0.67K 0.91L
G=219,924570,246=0.39 H=236,904592,536=0.40 I=243,644511,007=0.48J=219,924350,322=0.63 K=236,904355,632=0.67 L=243,644267,363=0.91Table 11: Indigo’s debt-equity ratio and debt-asset ratio compared with competitors
2013 Debt ratio Debt-equity ratio
Indigo Books & Music, Inc. 0.39G 0.63J
Amazon.com Inc. 0.75M 2.97N
Wal-Mart Stores Inc. 0.60O 1.48P
M=24,36332,555=0.75 N=24,3638,192=2.97 O=121,367203,105=0.60 P=121,36781,738=1.48Table 12: Indigo’s debt-equity ratio and debt-asset ratio compared with industry benchmark
2013 Debt ratio Debt-equity ratio
Indigo Books & Music, Inc. 0.39G 0.63J
Industry Benchmark 0.64R 2.01S
R=G+M+O+3,049,8723,723,0124=0.39+0.75+0.60+0.824=0.64S=J+N+P+3,049,872673,1404=0.63+2.97+1.48+2.974=2.01LIST OF