The Kroger Co., Research Paper Example

Company Overview

The Kroger Co., was incorporated on April 3 1902. A prominent retailer in the United States, the Company is known for manufacturing in-house many of the food products it has on sale. Since January 28, 2012, the Company has operated directly through its subsidiaries, accounting for over 2,435 supermarkets and 1,090 multi-department stores,with fuel centers incorporated. An estimated 45% of these supermarkets functioned out Company-owned facilities. This includes units Kroger owns on leased land. These markets include Kroger, Dillons, City Market, Jay C, Food 4 Less, Fry’s, Fred Meyer, King Soopers, Ralphs, Smiths, and QFC. Kroger Co. also owns and operates 791 convenience stores as well as 348 jewelry stores. In addition to the supermarkets, as of January 28, 2012, the Company operated through subsidiaries made up of over 791 convenience stores and 348 jewelry stores. All of their jewelry stores were located in malls that operated in leased locations. In addition, 83 convenience stores function as a product of the franchise. An estimated 51% of the convenience stores were operated by subsidiaries were operated in Company-owned facilities. The following will breakdown and financial analysis of Kroger based on its Sec10 filing for 2014.

Category: Revenue and Net Income

What was the corporation’s net sales, cost of goods sold, and gross profit?

As noted in the Kroger Co. Sec 10 report, “Net earnings totaled $1.5 billion in 2013, $1.5 billion in 2012 and $602 million in 2011.  The net earnings for 2013 include a net benefit of $23 million, after tax, related to the 2013 adjusted items.  The net earnings for 2012 include a benefit from net earnings of approximately $58 million, after-tax, for the extra week and a net $74 million, after-tax, benefit for the settlement with Visa and MasterCard and a reduction in our obligation to fund the UFCW consolidated pension fund created in January 2012 (“2012 adjusted items”)” (THE KROGER CO., 2014). The table below demonstrates the sales cost of goods sold and gross profits.

As the table above shows, Kroger Co.’s net sales for 2010 equaled 76.61 B, 2011 82.05B, 2012 90.37B, 2013 96.75B and in 2014 98.38B. The company’s cost of goods sold in 2010 was around 60.37B, in 2011 65.4B, in 2012 73.13B, in 2013 78.51B, and in 2014 79.86B. The Gross income made by the company in 2010 equalled 15.24B, in 2011 16.65B showing an increase of about 2.53%. In 2012, it came out to 17.24B, showing an increase of about 3.58%. In 2013 the gross profit earned amounted to 18.24B for a a continued gross income growth percentage increase of about 5.79%. In 2014 it came out to 18.52B accounting for an increase of about 1.51%. The total profit margin for the past five years is 18.82%. Kroger Co.’s corporate tax rate for 2014 was 29.8%, and it’s five year average effective tax rate accounted for 43.7%. The company’s current ratio is 0.8, the quick ratio is 0.2 and the debt to assets ratio is 2.10, with a debt ratio of 38.6. The P/E, represents the price earnings ratio and it accounts for Kroger Co.’s share price in relation to its per share earnings. Currently, Kroger Co.’s P/E is 16.7.  P/E is calculated with dividing the market value per share by the earning per share (EPS). Use the equation the net income minus dividends equals retained earnings ending balance the following graph shows how Kroger Co.’s retained earnings account has changed during the past 5 years.

Kroger has been able to sustain retained earnings over the course of the past five years.

Return on stockholder’s equity

Kroger’s current share price is $49.33 per share. 52 weeks ago, Kroger’s share price was $35.13 per share. The company has shares outstanding of 488.9 million shares, and a market cap of 24,118.4. Kroger Co. had a return on Equity of 31.7% and an earnings per share of EPS of $2.93. The company demonstrates continuous growth in earnings per share, and continuous growth in regards to profitability. Inventories of Kroger Co. represent the lower cost as the company follows a last in first-out policy “LIFO.” In total, about 95% and 96% of inventories for 2013 and 2012, were assessed using Kroger’s  LIFO method. Cost for the balance of the inventories, including substantially all fuel inventories, was determined using the first-in, first-out (“FIFO”) method. The tax law refers to ‘shares’ or similar rights, making a clear distinction between corporations as limited shares and the corporations that don’t have funds divided into shares. This includes  unincorporated organizations that could possibly be treated as corporations for tax purposes (Harris, 2013).

Cash Flow Information

Kroger is also significantly liquid as its liquidity ratio is 0.25. The receivable turnover is 90.8 and the cash flow is 6.50.  Operating Cash flow ratio measures the liquidity of a company and demonstrates the efficiency with which bills and debts are paid off. The equation below breaks down how operating cash flow ratio is calculated.

In regards to cash flow information, Kroger notes that it generated $3.4 billion of cash from operations in 2013. This was compared to $2.8 billion generated  in 2012 and $2.7 billion generated in 2011. The cash flow the company generated was acquired as a product of operations and it was earned through net earnings. These values also include non-controlling interests primarily for non-cash expenses, specifically those related to depreciation and amortization. The sec report notes that “LIFO charge and changes in working capital. The increase in net cash provided by operating activities in 2013, compared to 2012, resulted primarily due to changes in working capital and long-term liabilities. The increase in net cash provided by operating activities in 2012, compared to 2011, resulted primarily due to an increase in net earnings including non-controlling interests, offset by a decline in long-term liabilities and changes in working capital” (The Kroger Co., 2014). The change in working capital is the product of increased cash flow Kroger has been able to acquire through increased profit margins over the course of the past five years. The LIFO, last in first out, policy plays a substantial role in the company’s liquidity and sustaining profits.

Reference List

Daneels, A., & Salter, W. (1999, October). What is SCADA. In International Conference on Accelerator and Large Experimental Physics Control Systems(pp. 339-343).

Harris, Peter. (2013). Taxation of corporate income when distributed. Corporate tax law: structure, policy and practice. Cambridge, UK: Cambridge University Press,. Print.

The Kroger Co. (2014). Annual Report. Retrieved July 15, 2014 Intel Corporation. (2007). Network in a box: Wireless LAN architecture for Small Offices. Retrieved from: http://www.intel.com/it/pdf/network-in-a-box.pdf