ratio compares currents assets with current liabilities to assess whether
business would be able to pay its short term dues out of its short term
resources when they fall due? (BPP, 2016) Examination of
current ratio for the two companies show that Sports Direct has invested more
in current assets as compared to JD sports. Sports direct is comparatively a
larger business than JD sports, that’s why it has more investment in current
compares quickly convertible into cash assets with current liabilities to
assess business’s ability to pay short term dues (BPP,
For most retailers, quick ratio is under 1 and both of these companies are no
exception. Liquid ratios for the two companies are in line with their current
ratio and do not indicate anything unusual.
days measure for how many days, stock is held in the company warehouse before
it’s sold. Lower inventory holding period is desired (BPP,
Sports direct’s inventory days have been in 120s or 130s over the three years
period. while JD’s inventory holding days are quite low and have a downward
trend. Although, this ratio indicates that JD’s doing better, Sports Direct
might have been keeping more stock because it’s comparatively, a bigger
two companies are retailers, therefore accounts receivable days might not be
much relevant here. Retailer companies sell on cash and most receivables are
not likely to be from credit sales.
payable days show how many days business takes to pay its credit suppliers (BPP,
Accounts payable days for Sports Direct have been 39 in 2015, which rose to 137
in 2016 and 126 in 2017. Company might have been buying bulk quantities on
credit, or maybe they have negotiated better credit terms with credit
suppliers. JD’s accounts payable days have fallen from 58 in 2015 to 43 in
2017, which is an indication that company is quickly paying to its suppliers.
to total equity ratio shows that JD has higher debt to equity compared to
Sports Direct. However, main reason behind that is lower total equity compared
to total debt. Sports direct has more long term borrowings in 2016/17, but
still their ratio is under 1.
EPS is a
very important investor ratio. Although Sports Direct has a higher EPS than JD
sports, its due to large investment income discussed earlier.
Direct hasn’t paid any dividend in the last three years. While JD’s dividend
payout ratio is also declining over the three years period.
equity compares after tax profit with total equity. A higher return on equity
is desired (BPP, 2016). JD’s ROE has been higher than Sport Direct in the last
three years. Sports Direct ROE also looks good but this fact must not be
ignored that, almost half of profit is coming from disposals of financial
assets and derivatives. Overall, JD’s ROE is much better than Sports Direct’s.