StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Circuit City: Financial Strengths and Recommendation - Case Study Example

Cite this document
Summary
Circuit City: Financial Strengths and Recommendation.
Circuit City, the third largest consumer electronics retailer in the United States is actually experiencing financial problems as evidenced by its computed financial ratios presented by Reuters…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.5% of users find it useful
Circuit City: Financial Strengths and Recommendation
Read Text Preview

Extract of sample "Circuit City: Financial Strengths and Recommendation"

Running Head: WEEK THREE ASSIGNMENT Week Three Assignment In APA Style By Circuit Financial Strengths and Recommendation Circuit City, the third largest consumer electronics retailer in the United States is actually experiencing financial problems as evidenced by its computed financial ratios presented by Reuters. It should be noted that during the fiscal year 2006, the business organization reported operating and net losses indicating its failure to create value for the company's shareholders.

Circuit City posted a net profit margin of -1.22% when the industry reported 2.89% while the sector averaged 9.56% (Circuit City 2007). However, amidst the failure of the retailer to operate profitability it should be commended for its financial strengths in terms of liquidity and leverage. It should be noted that during the fiscal year 2006, Circuit City reported a quick ratio of 0.55 and a current ratio of 1.53. The company is more liquid than the industry which posts a quick ratio of 0.41 and current ratio of 1.

27(Circuit City 2007). These higher liquidity ratios indicate that the company's current assets in proportion with short term liabilities can more likely cover its current obligations if they become due immediately. The fact that Circuit City is outperforming the industry is an indication of financial strength. Circuit City has a relatively less risky capital structure compared to the industry and the retailing sector. The company's long term debt to equity ratio is 0.03 far less than the industry average of 0.26. Furthermore, its long term debt to equity ratio is 0.

04 which is also less than the 0.53 in the industry (Circuit City 2007). These low ratios indicate the lower risk faced by the company since its resources are mostly financed by equity and not by debt. It should be noted that debt presents higher risk because of companies are required to pay interest during certain periods. With the current low profitability in Circuit City, it is recommended that the retailer focus on enhancing its revenue and minimizing cost. The company should conduct a thorough analysis of its operation and value chain in order to look for avenues where it can remove unwanted expenditures.

Circuit City should improve its efficiency by eliminating non-value adding activities in its operations. In this way, the company can minimize its cost and improve profitability.Why Best Buy Best Buy is one of the toughest competitors of Circuit City. In revenue and market share alone, Best Buy outperforms its rival. For an investor, this paper recommends Best Buy stocks as a better investment alternative to Circuit City's. In contrast to the poor profitability in Circuit City, the business organization registers an operating profit margin and net profit margin of 5.63% and 3.83% respectively (Best Buy 2007).

Best Buy should also be favored when both companies are measured through return on equity. It should be noted that this financial ratio is considered the ultimate test for a company because it shows how the business organization fares in creating value for its stockholders. Return on equity in Circuit City is -8.36% due to its financial losses while Best Buy is able to create value for its shareholders with its 24.04% return on equity which is higher than the industry average (Best Buy 2007; Circuit City 2007).

ReferencesBest Buy Inc. 2007, AOL Money and Finance, Retrieved 26 September 2007, from http://finance.aol.com/quotes/best-buy-incorporated/bby/nys/fundamentalstabs=fundamentalsCircuit City Stores Inc. 2007, Reuters.com, Retrieved 26 September 2007, from http://stocks.us.reuters.com/stocks/ratios.aspsymbol=CC&WTmodLOC=L2-LeftNav-16-Ratios

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Circuit City: Financial Strengths and Recommendation Case Study”, n.d.)
Circuit City: Financial Strengths and Recommendation Case Study. Retrieved from https://studentshare.org/miscellaneous/1515601-week-three
(Circuit City: Financial Strengths and Recommendation Case Study)
Circuit City: Financial Strengths and Recommendation Case Study. https://studentshare.org/miscellaneous/1515601-week-three.
“Circuit City: Financial Strengths and Recommendation Case Study”, n.d. https://studentshare.org/miscellaneous/1515601-week-three.
  • Cited: 0 times

CHECK THESE SAMPLES OF Circuit City: Financial Strengths and Recommendation

Managing in a mixed economy

The paper has been concluded with a few causes and reasons for the London Underground failure and liquidation of Metronet and is followed by the recommendation for the improvement of the PPP agreement.... This study deals with Private-Public Partnership (PPP) agreement between London Underground and Mertronet....
12 Pages (3000 words) Essay

Global Impact of Cell Phones on Humans

The materials making up cell phone printed circuit boards, liquid crystal displays, batteries and plastic casings contain toxic substances which... Name: Title: Course: Tutor: Date: Global Impact of Cell Phones on Human Race Abstract Since the invention of telephone in the nineteenth century, it has become part of human's everyday life around the globe....
6 Pages (1500 words) Research Paper

Business to Business - Office Depot Inc

In addition I also studied the reports of some of its competitors like circuit city Group Inc.... Pat Sher, Jack Kopkin and Stephen Dougherty established a company called Office Depot in 1986 in Fort Lauderdale, Florida.... The company went public in 1988 and was subsequently listed on the NASDAQ....
8 Pages (2000 words) Essay

STRATEGIC RECOMMENDATION

This paper will first provide a concise summary of Best Buy's business position in prevalent economic conditions and will then throw light over strategic recommendations and the relevancy and benefits associated with the implementation of the proposed strategies and business… It is worthwhile to mention that Best Buy is the only international business retailer, which deals in high premium quality electronic equipments and accessories (home office products, entertainment software, appliances and related services) at very affordable and The corporation was initially facing stiff competition with circuit city; however, the failure of circuit city (a former electronics dealer) in 2009 after deep economic recession and subsequent decrease in both domestic and international demand of electronic equipments, accessories and machinery has enabled the corporation to freely play in the market and gain additional market share....
5 Pages (1250 words) Essay

Operations Management of Z Mart

Due to financial constraints, hiring extra staff to man counters is not possible.... This case study “Operations Management of Z Mart” will try to highlight potential areas of improvement in the management and organization of Z Mart to avoid late handling and bad customer experiences....
8 Pages (2000 words) Essay

Wall Mart Mission

The company's mission and vision provide a tool for communicating the company's purpose and its entire values to the major shareholders (Bonaich, 2004).... Stakeholders are the vital parties who have enormous influences over the company in the firm's future.... The primary… How marvelous the employees understand the company's purpose, through the company's mission and vision, the better they will e able to comprehend the company's strategy and The mission and vision provide a target for the company's strategy development....
7 Pages (1750 words) Essay

The Shareholders of Blockbuster

They include the Learning and Growth Perspective, the Business Process Perspective, the Customer Perspective, and the financial Perspective.... and to explain why and how things went wrong, and suggest a leadership plan to move the company forward.... It also attempts to review the management and regulatory policy context and… Blockbuster Entertainment Inc....
16 Pages (4000 words) Essay

Development and Management of the City in the United Kingdom

It is a leading city, with strengths in the following number of areas; commerce, arts, healthcare, education, fashion, media, entertainment, professional services, tourism, research and development, and transport all of which contribute to its prominence.... London is one of the leading financial centers in the world.... The rationale behind the choice of London in the paper "Development and Management of the city in the United Kingdom" is that it is one of the most toured destinations in the world....
8 Pages (2000 words) Literature review
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us