Current indicate anything unusual. Working capital ratios Inventory days

Currentratio compares currents assets with current liabilities to assess whetherbusiness would be able to pay its short term dues out of its short termresources when they fall due? (BPP, 2016) Examination ofcurrent ratio for the two companies show that Sports Direct has invested morein current assets as compared to JD sports. Sports direct is comparatively alarger business than JD sports, that’s why it has more investment in currentassets. Quick ratiocompares quickly convertible into cash assets with current liabilities toassess business’s ability to pay short term dues (BPP,2016).For most retailers, quick ratio is under 1 and both of these companies are noexception. Liquid ratios for the two companies are in line with their currentratio and do not indicate anything unusual. Workingcapital ratiosInventorydays measure for how many days, stock is held in the company warehouse beforeit’s sold. Lower inventory holding period is desired (BPP,2016).Sports direct’s inventory days have been in 120s or 130s over the three yearsperiod.

while JD’s inventory holding days are quite low and have a downwardtrend. Although, this ratio indicates that JD’s doing better, Sports Directmight have been keeping more stock because it’s comparatively, a biggerretailer. Since thetwo companies are retailers, therefore accounts receivable days might not bemuch relevant here. Retailer companies sell on cash and most receivables arenot likely to be from credit sales.Accountpayable days show how many days business takes to pay its credit suppliers (BPP,2016).Accounts payable days for Sports Direct have been 39 in 2015, which rose to 137in 2016 and 126 in 2017. Company might have been buying bulk quantities oncredit, or maybe they have negotiated better credit terms with creditsuppliers.

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JD’s accounts payable days have fallen from 58 in 2015 to 43 in2017, which is an indication that company is quickly paying to its suppliers.   RiskratiosTotal debtto total equity ratio shows that JD has higher debt to equity compared toSports Direct. However, main reason behind that is lower total equity comparedto total debt. Sports direct has more long term borrowings in 2016/17, butstill their ratio is under 1. Investorratios: EPS is avery important investor ratio. Although Sports Direct has a higher EPS than JDsports, its due to large investment income discussed earlier.

SportsDirect hasn’t paid any dividend in the last three years. While JD’s dividendpayout ratio is also declining over the three years period. Return onequity compares after tax profit with total equity.

A higher return on equityis desired (BPP, 2016). JD’s ROE has been higher than Sport Direct in the lastthree years. Sports Direct ROE also looks good but this fact must not beignored that, almost half of profit is coming from disposals of financialassets and derivatives. Overall, JD’s ROE is much better than Sports Direct’s.