Financial Analysis : Radioshack 's Financial Stability Essay

Financial Analysis : Radioshack 's Financial Stability Essay

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RadioShack’s financial stability has been a much discussed topic in the electronic retail store industry. It has only recently realized that its old formula has not translated well into the current market. Part of its plan to become an active competitive member in their industry relies on several factors within the company that can be analyzed, changed, and fixed using a financial analysis. The financial ratios will let them identify their problem areas in comparison to their industry competitors.
The Return on Capital Employed (ROCE) ratio is a profitability ratio that measures how well profits are being generated based on capital employed. RadioShack’s ROCE dropped down to -34% in 2013 in comparison to 10% in 2012. For every dollar of capital employed, RadioShack is losing $0.34. The dramatic dip stems from 2012’s positive earnings before interest and taxes (EBIT) of 155.1 million dollars to 2013’s EBIT of -344 million dollars. Capital employed is determined by subtracting current liabilities from total assets. In 2013, capital employed decreased by 79 million dollars. ROCE is used to view the long-term profitability of firms. A more in-depth trend analysis done over several years would need to be done to determine the longevity of RadioShack.
Return on sales (ROS) is determined by dividing operating profit, an interchangeable term with EBIT, by sales. RadioShack experienced a 14% decrease from 2012’s 4% ROS to 2013’s -10% ROS. A ratio assessing a firm’s operational efficiency, ROS can signal financial complications due to lack of sales. While RadioShack’s ROS is healthily within the industry average, it is on the lower spectrum of it. The sales to capital employed ratio analyzes how much firms are, or aren’t, using their a...

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...ich drops their profit when they are receiving almost zero return in those areas. A business is only successful if they can make a profit. While the electronic retail store industry is currently in a lull, changes should be made to ensure they can compete against those in that are doing well. Both companies are feeling the punch from companies that can offer the same products for a cheaper price and a quicker attainment time frame. The companies both offer site-to-store as an option to avoid long shipping times with online orders. Many stores in the retail industry have enlisted this option in order to draw in those customers who are order from websites such as Amazon. RadioShack and Best Buy will need to reassess their current strategies in order to compete with such companies in order to maintain long-term success after bouncing back from their current downturn.

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