Vertical Analysis – Income Statement (Randall vs. Industry Average):

Vertical Analysis – Balance Sheet (Randall vs. Industry Average):

Comparison of Randall’s Performance with the Industry Average:

Randall Department Stores’ performance in 2020 shows a mixed picture when compared to the industry average. While Randall’s operating expenses are notably lower as a percentage of sales (11.88% vs. 20.90%), its cost of goods sold is significantly higher (78.40% vs. 67.40%), resulting in a much lower gross profit margin (21.60% vs. 32.60%). This lower gross profit ultimately leads to a lower net income percentage (8.72% vs. 10.90%) compared to the industry. On the balance sheet, Randall has a smaller proportion of current liabilities relative to its total assets (51.51% vs. 65.00%), which could indicate better short-term liquidity. However, it relies more on long-term liabilities (21.28% vs. 17.00%) and has a higher percentage of stockholder’s equity (27.21% vs. 18.00%), suggesting a potentially stronger equity base or a different financing structure.

Computed Ratios and Their Meaning:

• Current Ratio: 1.30
  • Meaning: The current ratio indicates a company’s ability to meet its short-term obligations using its short-term assets. A ratio of 1.30 means Randall has $1.30 in current assets for every $1.00 in current liabilities. This ratio is generally considered adequate, suggesting that Randall has sufficient liquidity to cover its short-term debts. Compared to the industry’s allocation of assets (67.19% current assets vs. 68% for industry) and liabilities (51.51% current liabilities vs. 65% for industry), Randall appears to manage its current assets and liabilities relatively well, especially given its lower percentage of current liabilities compared to the industry average.
• Gross Profit Percentage: 21.60%
  • Meaning: This ratio shows the percentage of revenue remaining after deducting the cost of goods sold. Randall’s gross profit percentage of 21.60% is significantly lower than the industry average of 32.60%. This indicates that Randall is spending a larger proportion of its sales revenue on purchasing or producing the goods it sells. This could be due to higher purchasing costs, less efficient inventory management, or lower selling prices compared to competitors. It suggests that Randall needs to evaluate its pricing strategy or cost of goods sold to improve its profitability at the gross profit level.
• Debt Ratio: 72.79%
  • Meaning: The debt ratio measures the proportion of a company’s assets that are financed by debt. A ratio of 72.79% means that 72.79% of Randall’s assets are financed through liabilities, while the remaining 27.21% is financed by equity. This is lower than the industry average debt ratio of 82.00%, implying that Randall relies less on debt financing and more on equity compared to its industry peers. A lower debt ratio generally indicates lower financial risk and greater financial stability, as the company has a larger cushion against potential financial downturns.