General information about the companies For my course project I chose to compare Dollar Tree and Dollar General. Both of these companies are in the retail industry. These companies sell similar items. Both of these companies are very competitive in the industry they operate in. Let us begin by looking at the Dollar Tree. The Dollar Tree started as a variety store under a different name in 1954 (dollartree. com, 2013).
This was a family business and was interested in offering products for less money than other retail stores were able to. This brought in huge profits for such a small “mom and pop” business.
In recent years the name has changed a few times until in 1990 the store name was changed to Dollar Tree. It has been the same since that time. Dollar General began during the Great Depression. J. L Turner and his son were buying retail stores that were hard hit by the depression (dollargeneral. com, 2013).
The first store was named J. L Turner and Son Wholesale. The idea was that nothing in the store would cost more than a dollar. This idea spread like wildfire. Dollar General Corporation was formed in 1968. It has grown tremendously since that time. II. Current events Dollar Tree seems to be having a good year in 2013.
They have reported earnings in excess of 7 billion dollars (businessweek. com, 2013).
This amount has grown over the last few years. It seems that Dollar Tree is also cutting administrative and general costs in order to save money. This has led to a bottom line growth from $488. 3 million to $619. 3 million. This seems to be a good indication of how this company is going to fare in the next year. Dollar General has had growth in the past year as well. They have opened up new stores while not making any significant store closings (businessweek. com, 2013).
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They had revenues for 2012 that amounted to $16 billion.
This is significantly less than Dollar Tree. The Dollar General has stepped out into a new field for them as well. They are now experiencing the supermarket field. This has led to more debt. The current amount of debt that is carried on the balance sheet for 2013 is $2, 167, 300. While this is a lot of debt, their debt ratio is still looking good. III. Relevant ratios The following chart shows the ratios that I feel are important to these businesses. Ratio| Dollar General| Dollar Tree| Days Sales Outstanding| 0| | Days Inventory| 73. 53| 7. 78| Payables Period| 38. 81| 24. 37| Inventory Turnover| 4. 96| 5. 16|
Fixed AssetTurnover| 8. 25| 8. 28| Asset Turnover| 1. 60| 2. 91| Marketwatch. com (2013) I chose these ratios because I think they are especially important in the retail industry. I think that these ratios could be used to evaluate any industry, but they are especially useful in the retail industry. While looking at these ratios it looks as if these two companies are very close in every aspect except for the days in inventory. This can be crucial in the retail industry. The longer merchandise sits on the shelf, the harder it is to make money on it. IV. Spreadsheets I have completed the spreadsheets for both companies.
I have added an icon that can be clicked on to display the information on both companies. V. Significant assets and liability items, comments on revenue and profitability Dollar Tree With revenues in the $6 billion dollar range it would be foolish to say that Dollar Tree is not making a profit. They have a very good balance between their debt financing and the assets they have on hand (dollartree. com, 2013).
With a debt/equity ratio of 65. 10% in 2013, this puts them in a good position for using the free cash flow they have to research and see what areas they could make improvements in.
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It seems that the most significant assets that Dollar Tree has is in their inventories. This is the largest part of their assets. They also have some intangible assets that account for about 35% of their total assets. The liabilities that Dollar Tree has are in the form of accounts payable. They do not have very much long term debt. Their long term debt accounts for less than 10% of the total liabilities. Dollar General Dollar General has a lot of revenue. In 2013, they reported $16,200,000. The main assets for this company are their inventory. In 2013, their inventory assets were recorded at $2,397,200.
No one can argue the fact that they are not making money. Even though they are making money, Dollar General has a high debt/equity ratio (dollargeneral. com, 2013).
This is due in part to the expansion of their business into the supermarket industry. With going into this industry, it means having to use debt to open up new stores and all the costs associated with opening a new business in a different industry. While the debt is high, they still have a lot of revenue each year. I do not see having a lot of debt for Dollar General as being a negative thing. After all, we have to spend money to make money.
VI. Relevant ratios and vertical analysis discussion The first thing that I looked at when doing my vertical analysis of these companies were the percentage of cost of goods sold. This seems to be an indication of how much each company will have in gross profit. The Dollar Tree has cost of goods sold at 64. 13%. This seems like a fair figure to me. This gives them a gross profit of 35. 87%. That is a good amount of profit after the cost of goods sold. This ratio is especially important to the Dollar Tree because the amount of goods sold is the heart of the business.
Dollar General is very close to their competition in cost of goods sold. For 2012 they recorded 68. 27%. This is just a little under the Dollar Tree. The amount of gross profit that this company has is 31. 73%. The slight difference in numbers between these two companies can come from the amount of time it takes to move inventory. The days in inventory for Dollar General are substantially larger than that of Dollar Tree. VII. Brief analysis of horizontal analysis I have reviewed my findings on vertical analysis in each of the workbooks and they seem to be correct.
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While both of these companies are very similar in comparison, I believe that Dollar Tree is in a better position. These companies are very close in the amount of gross profit that is received, but Dollar General has long term liabilities that are over half of the total amount of all their liabilities. The amount of long term liabilities that Dollar Tree has is small in comparison to their competitor. Dollar Tree has total liabilities in the amount of 39. 43%. Only 14. 8% of this is for long term liabilities. VIII. Company objectives The objectives of these companies are somewhat alike.
Dollar Tree wants to increase the productivity at each of their locations. In doing this, they would be more productive, at a lower cost. This can increase revenue for this company. This is a good idea for the investor. Dollar General is looking at how they can utilize their space (dollargeneral. com, 2013) to bring more revenue in. More space can also mean more sales. This can lead to more revenue as well. Both companies want to expand on how they serve customers. Dollar Tree is developing an app that will allow customers to order from their cell phones (dollartree. com, 2013).
Dollar General is looking at how to improve customer service. IX. Three most important ratios The ratios that are most important for these companies are the net profit ratio, the debt to equity ratio, and the gross profit margin. I chose the gross profit earned because this shows how well the company is doing in revenue after the cost of goods sold is deducted. I believe that the debt to equity is important to look at because it is very important to make sure that a company has enough money to pay the bills that they have. If they do not have enough equity to cover their debt, this can lead to trouble in the future.
The net profit ratio is important to look at because this gives the investor an idea about how well the company is faring overall. We can look at this and see what the bottom line is after everything is said and done. The following chart shows these ratios for each company. X. Industry comparisons The following chart will show how Dollar Tree and Dollar General compare in different areas with other companies in the retail industry.
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