solution

Ratio Analysis—Urban Outfitters

Read the overview below and complete the activities that follow.

Assessing how well a company’s strategy is presently working involves evaluating the strategy from a qualitative standpoint and a quantitative standpoint. The stronger a company’s current overall performance, the less likely the need for radical strategy changes. The weaker a company’s performance, the more its current strategy must be questioned.

The goal of this exercise is for you to understand how well a company’s strategy is working based on its financial results.

Before completing this exercise, be sure to review Chapter 4, “Evaluating a Company’s Resources, Capabilities, and Competitiveness,” as well as Table 4.1, “Key Financial Ratios: How to Calculate Them and What They Mean,” which provides a compilation of the financial ratios most used to evaluate a company’s financial performance and balance sheet strength. You will also need the Urban Outfitters financial statements presented below.

Calculate the following ratios for Urban Outfitters for both 2018 and 2019. Be sure to report items (a) through (e) in percentages (i.e., multiply your result × 100).

a. Gross profit margin

b. Operating profit margin

c. Net profit margin

d. Return on stockholders’ equity

e. Return on assets

f. Debt-to-equity ratio

g. Days of inventory

h. Inventory turnover ratio

i. Average collection period

(Round your answer to 1 decimal place.)