Kroger

Financial Project
Principles of Accounting II
ACC240-AB
Gabrielle Corbin

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PART ONE

As of February 1, 2014, 2,640 Kroger supermarkets and multidepartment stores were in operation. Of these stores, 1,240 also had a
fuel center (Annual Report, A-5). The nationwide supermarket chain
generally operates its stores under one of the following formats:
combination food and drug stores (combo stores), multi-department
stores, marketplace stores, or price impact warehouses (Annual
Report A-5). Kroger operates many stores under different names
including but not limited to: (supermarkets) Kroger, Ralphs, King
Soopers ;(price/impact warehouse stores) Food4Less, Foods Co.; (multidepartment stores) Fred Meyer, Smiths Marketplace, Kroger
Marketplace; and (convenience stores) TurkeyHill, Kwikshop, KwikStop
(Cover Page).
Combo stores are primarily food stores. Natural and organic
foods are available as well as fresh seafood, and organic produce.
Pharmacy services are provided as well as pet products and general
merchandise. This allows customers to receive a one-stop shopping
experience. Multi-department stores are significantly larger than
combo stores. These stores sell all the products that are in a combo
store, but also have a wider selection of general merchandise. Some of
these items include: apparel, home fashion and furnishings,
electronics, automotive products, toys, and fine jewelry (Annual
Report, A-5). Marketplace stores are smaller than multi-department

stores, but still have a full grocery service. Health and beauty
departments and pharmacy services are also available. Some general
merchandise items can be purchased such as apparel, home goods
and toys (Annual Report, A-5). Price impact warehouse stores feature
everyday low prices plus promotions (Annual Report, A-5). Grocery
and health and beauty products can be purchased as well as quality
meat, dairy, baked goods and fresh produce items (Annual Report, A5). These stores are in a warehouse format but are similar in size to a
combo store.
The company stays competitive by the continuous development
of their personal brands. Kroger Value is the main brand created by
the company. Customers can find almost all products produced by
main brand companies in the Kroger Value brand for a slightly
cheaper price. Simple Truth and Simple Truth Organic are other
brands being developed. Products under these brands are free from
101 artificial preservatives. Simple Truth Organic products are also
USDA certified organic (Annual Report, A-6).
The year 2013 was another good year of growth for the company.
Total sales were $98.4 billion and net earnings were $1.52 billion. Net
earnings grew 13% from last year. The company accredited its success
to a program targeting 4 key progress indicators: Positive identical
supermarket sales; slightly expanding FIFO operating margin on a
rolling four quarters basis, excluding fuel; improving return on invested

capital; and growing market share (Letter to SH, p 1). Kroger was able
to perform well concerning all four indicators.
In 2013, the first full fiscal year executing our aggressive growth
plan, Kroger delivered on all 4 indicators. We achieved an
unparalleled 41st consecutive quarter of positive identical
supermarket sales; expanded FIF operating margin on a rolling
four quarters and adjusted basis, excluding fuel; improved return
on invested capital, even as we increased capital investments;
and grew market share for the ninth consecutive year (Letter to
SH, p 1).
It was also Krogers ninth consecutive year of reducing operating costs.
This reduction allows the company to invest this money in working to
create lower prices for customers.
The market price for Kroger stock on January 26th was $67.96.
Over the past year, this stock has been steadily increasing. Looking at
the graph for stock prices over the past year, fluctuation isnt
prevalent, however, when looing at the graph over the past month, you
can see a small fluctuation between 5 dollars. This stock has a trend of
steady increase. (wsj.com/KR/financials).

PART TWO
Calculated Ratios (All numbers are in millions except market price)
2013

LOOK AT PAGES
1036-1037 IN BOOK

2012

Trend

Current Year

Previous Year

Favora
ble/Unf
avorab
le

19,510
23,476
= .831062

CURRENT RATIO

Computati
on
Ratio

20,438
24,652
= .829061

ACID TEST
(QUICK)RATIO

Computati
on

(238+0+1,051
)
11,057
= .11658

= .12488
76,726
(6157+5793)/
2
= 12.84117

Ratio

78,138
(6244+6157)/
2
= 12.60189

Ratio
3

INVENTORY
TURNOVER

Computati
on

(188+0+949)
9,105

DAYS IN INVENTORY

Computati
on
Ratio

365
12.60189
=28.96 days

365
12.84117
= 28.42 days

GROSS PROFIT
PERCENTAGE

Computati
on
Ratio

2,725
98,375
= 2.77%

2,765
96,619
= 2.86%

ACCOUNTS
RECEIVABLE
TURNOVER

Computati
on
Ratio

98,375
(1051+949)/2
= 98.375

96,619
(949+845)/2
= 107.713

365
98.375
= 3.71 days

365
107.713
= 3.39 days

DAYS SALES IN
RECEIVABLES

Computati
on
Ratio

20,438
24,652
= .829061 =
82.9%

19,510
23,476
= .831062 =
83.1%

DEBT RATIO

Computati
on
Ratio

DEBT TO EQUITY
RATIO

Computati
on

20,438
4,214

19,510
3,966

1
0

TIMES INTEREST
EARNED RATIO

Ratio

= 4.85002

= 4.91931

Computati
on

(1531+751+4
43)
443
= 6.15124

(1508+794+4
62)
462
= 5.98268

Ratio
1
1

RATE OR RETURN ON
NET SALES

Computati
on
Ratio

1531
98375
= .01556 =
1.556%

1508
96619
= .01561 =
1.561%

1
2

RATE OF RETURN
ON TOTAL ASSETS

Computati
on

(1531+443)
(24,652+23,4
76)/2
= .08203 =
8.2%

(1508+462)
(23,476+23,5
05)/2
= .08386 =
8.4%

96,619
(23,476+23,5
05)/2
= 4.11311

Ratio

98375
(24,652+23,4
76)/2
= 4.08806

Ratio
1
3

ASSET TURNOVER
RATIO

Computati
on

1
4

RATE OF RETURN ON
COMMON S.H EQUITY

Computati
on
Ratio

(1531-319)
(959+959)/2
= 1.26382

(1508-121)
(959+959)/2
= 1.44630

1
5

EARNINGS PER
SHARE OF COMMON
STOCK

Computati
on
Ratio

(1531-319)
(959+959)/2
= $1.26 /
share

(1508-121)
(959+959)/2
= $1.45 /
share

1
6

PRICE EARNINGS
RATIO

Computati
on
Ratio

67,96
1.26
= 53.94

26.46
1.45
= 18.25

1
7

DIVIDEND RATIO

Computati
on
Ratio

.33
67.96
= .0049 = .
49%

.28
26.46
= ,0106 =
1.06%

1
8

DIVIDEND PAYOUT

Computati
on
Ratio

.33
1.26
= .262 =
26.2%

.28
1.45
= .193 =
19.3%

1
9

BOOK VALUE PER

SHARE OF COMMON
STOCK

Computati
on
Ratio

959
959
= $1.00

959
959
= $1.00

Answer the following question: You have $10,000 to invest in this

company, would you consider investing ? Why or why not? (Based on
your ratio analysis; not market conditions.) Your conclusion should be
comprehensive and supported by good reasoning. This should be at
least two or three paragraphs.
I would not invest the $10,000 dollars into this company. Almost
every single ratio that I calculated had an unfavorable trend. The
ratios only increased/decreased by very small amounts, however
I still find this significant because of the amount of unfavorable
calculated ratios.
Also, some of the calculated ratios didnt meet some of the
typical requirements for a successful company. For example,
Krogers acid test ratio was .12 for the most current year, and
our book states that an acid test ratio of .90 to 1.00 is accepted
in most industries. This would be Kroger would be way below the
industry normal. Another ratio that didnt seem typical of a
successful business was Krogers gross profit percentage. For the
current year, Krogers gross profit percentage was only 2.77%.
This is extremely low compared to a successful business.

PART THREE
BALANCE SHEET
1. At the most recent year end (2013), how much is reported for:
Total current assets?
Total current liabilities?
Total retained earnings?

$7,959 million
$2,538 million
$0

2. What are the common shares outstanding for your company?

$959 million
3. Does your company have preferred stock?(yes or no) Yes, $5
million authorized preferred stock but unissued.
4. How much does your company have in plant assets? $16,893
million

INCOME STATEMENT
5. What is the total revenue for the current year? $98,375 million
6. What is the net income for the current year? $1,531 million
7. Identify the greatest expense for the current year: Operating,
General and Administrative Expense: $14,849 million

8. This income statement indicates (strong/weak) profitability. Why?

This income statement indicates strong profitability. The
company had a large net income for the most current
year and also had a good net income the previous year.

9. Does your company have any discontinued or extraordinary

items? (Yes or No)
No discontinued or extraordinary items.
STATEMENT OF CASH FLOWS
10.

At the most recent year end,(circle provided by or used for)

$3,380 million was provided/used by operating activities.
($4,771 million) was provided/used by investing activities.
$1,554 million was provided/used by financing activities.

11.

The primary source of cash was operating activities.

12.
For the most recent year, what is the primary investing
activity( can be positive or negative)? Payment of
acquisitions: ($2,344 million
13.
For the most recent year, what is the primary financing
activity( can be positive or negative)? Proceeds from issuance
of long-term debt: $3,548 million
14.
This statement of cash flow indicates a strong cash
position. Why?
The operating activities provided a large amount of cash for
the company. This also increased from years past. The
company spent a lot of money on investments, however these
investments were for things such as property and equipment
that will help further the companys success. Also, the overall
cash from the end to the beginning of the year increased. And
this happened the year before as well.