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    Ikea FinancialRatios Solution

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    Lina Nikolovska
    IKEA's financial ratios from 2018-2020 show that it has high profitability as evidenced by ROE, ROTA, and ROS, though these rates have declined slightly over time. Asset turnover has also decreased, suggesting IKEA could improve efficiency. Accounts receivable days are longer than accounts payable days, meaning IKEA pays suppliers before collecting from creditors. However, liquidity and financial strength ratios have improved from 2018, indicating better ability to meet obligations. Overall, IKEA demonstrates strong but declining performance compared to competitors.

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    Ikea FinancialRatios Solution

    Uploaded by

    Lina Nikolovska
    658 views4 pages
    IKEA's financial ratios from 2018-2020 show that it has high profitability as evidenced by ROE, ROTA, and ROS, though these rates have declined slightly over time. Asset turnover has also decreased, suggesting IKEA could improve efficiency. Accounts receivable days are longer than accounts payable days, meaning IKEA pays suppliers before collecting from creditors. However, liquidity and financial strength ratios have improved from 2018, indicating better ability to meet obligations. Overall, IKEA demonstrates strong but declining performance compared to competitors.

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    IKEA's financial ratios from 2018-2020 show that it has high profitability as evidenced by ROE, ROTA, and ROS, though these rates have declined slightly over time. Asset turnover has also decreased, suggesting IKEA could improve efficiency. Accounts receivable days are longer than accounts payable days, meaning IKEA pays suppliers before collecting from creditors. However, liquidity and financial strength ratios have improved from 2018, indicating better ability to meet obligations. Overall, IKEA demonstrates strong but declining performance compared to competitors.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    658 views4 pages

    Ikea FinancialRatios Solution

    Uploaded by

    Lina Nikolovska
    IKEA's financial ratios from 2018-2020 show that it has high profitability as evidenced by ROE, ROTA, and ROS, though these rates have declined slightly over time. Asset turnover has also decreased, suggesting IKEA could improve efficiency. Accounts receivable days are longer than accounts payable days, meaning IKEA pays suppliers before collecting from creditors. However, liquidity and financial strength ratios have improved from 2018, indicating better ability to meet obligations. Overall, IKEA demonstrates strong but declining performance compared to competitors.

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    At a glance
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    IKEA's performance is analyzed based on its past financial ratios and compared to Walmart and the US retail industry average. Several ratios related to profitability, liquidity, and financial strength are discussed.

    IKEA's profitability ratios like ROE, ROTA and ROS are generally higher than Walmart and the US retail industry, though some like asset turnover have decreased in recent years.

    IKEA's liquidity ratios like current ratio and quick ratio have improved relative to Walmart and US retail industry since 2018, though accounts receivable days are longer.

    IKEA's Financial ratios

    Profitability ratios
    IKEA 2018 IKEA 2019 IKEA 2020 EVALUATION

    performance ROE 19.9% 17.9% 18.1%

    based on its ROTA 9.1% 8.6% 10.5%

    past ratios ROS 7.7% 7.4% 9.4%

    Asset turnover 1.19 1.17 1.12

    Liquidity ratios

    Current ratio 1.36 1.53 1.74

    Quick ratio 0.65 0.81 1.04

    Inventory days 66.26 62.50 56.59

    Accounts receivable days 57.88 68.00 81.55

    Accounts payable days 70.19 64.92 55.69

    Financial strength ratios

    Interest coverage 4.41 5.02 5.30

    Debt to equity 2.12 1.82 1.51

    Cost of debt 2.88% 2.44% 2.91%


    IKEA's
    Retail industry
    Financial ratios IKEA 2020 Walmart 2020 VALUATION
    in the US 2020
    Profitability ratios

    performance ROE 18.1% 1.9% 16.6%

    based on ROTA 10.5% 2.2% 10.7%

    competitors ROS 9.4% 2.8% 4.8%

    and industry Asset turnover 1.12 n.a. 2.21

    average Liquidity ratios

    Current ratio 1.74 1.32 0.97

    Quick ratio 1.04 0.60 0.49

    Inventory days 56.59 61.00 29.34

    Accounts receivable days 81.55 10.00 4.25

    Accounts payable days 55.69 n.a. 32.08

    Financial strength ratios

    Interest coverage 5.30 2.18 4.10

    Debt to equity 1.51 1.82 2.25

    Cost of debt 2.91% n.a. 3.60%


    IKEA's
    ROE values over the years show that IKEA is a riskier company compared to
    Walmart and other competitors in the US retail industry. It is worth paying
    attention to the decreasing ROE in the past three years. However, ROE shows that
    performance the returns in this company are high enough to justify investments.
    ROTA and ROS show that IKEA effectively uses its assets to make profits; these
    values are higher than Walmart and the other competitors in the US retail
    An example of industry.
    a correct Asset Turnover has a negative trend, meaning that IKEA is decreasing its
    analysis efficiency in using its assets to generate sales. Also, Asset Turnover in 2020 is
    lower than Walmart's. The asset turnover ratio tends to be higher for companies
    in the Retail industry. Hence, lower values may indicate that Ikea's collection
    period may be too long, leading to higher accounts receivable. Indeed, Account
    Payable days are lower than Account Receivable, meaning that IKEA pays its
    suppliers before creditors. The values are negative even when compared to
    Walmart and the US retail industry. This trend was opposite in 2018, emphasizing
    the importance of focusing on this matter.
    Current ratio and quick ratio values show that IKEA may cover the obligation
    due shortly. From 2018, the values of Liquidity ratios changed positively, improving
    their relative performance compared to Walmart and the other competitors in the
    US retail industry.
    Finally, financial strength ratios, which provide IKEA's ability to meet interest
    and payments, in the long run, are improving from the values in 2018. IKEA is in a
    better position compared to Walmart and other competitors in the US retail
    industry.

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