Kroger Company

Several reasons lead to determination of a takeover target primarily by looking at quality of ratios:

Ratio Table | | | | | |

  | 1986 | 1987 | 1988 | 1989 | 1990 |

Return on Asset | 3.4% | 4.0% | 3.5% | -0.7% | 1.1% |

Return on Equity | 11.9% | 15.8% | -6.1% | 0.9% | -1.6% |

Market to Book Ratio | 72.3% | 61.3% | 58.4% | 82.1% | 89.8% |

Long term Debt / Total Assets | 20.3% | 22.1% | 102.4% | 111.4% | 110.7% |

Dividend Payout Ratio | 68.9% | 52.6% | 2276.9% | 6.7% | 0.0% |

Z-SCORE | 5.481092 | 5.160397 | 3.992234 | 4.410425 | 4.884453 |

Cash flow from

operations ratio | 21.8% | 9.2% | 24.4% | 19.7% | 24.2% |

Times Interest Earned | 3.5 | 3.9 | 2.2 | 1.0 | 1.2 |

Solvency ratio | 21.4% | 20.2% | 18.5% | 10.2% | 14.2% |

Debt Ratio | 0.717327 | 0.74574 | 1.580624 | 1.698963 | 1.694343 |

Current Ratio | 1.139181 | 1.097809 | 1.140878 | 0.98985 | 0.945684 |

D/E Ratio | 2.537662 | 2.932981 | -2.72228 | -2.43069 | -2.44021 |

Equity Ratio | 0.282673 | 0.25426 | -0.58062 | -0.69896 | -0.69434 |

Profit Margin Ratio | 0.79% | 0.98% | 0.77% | -0.16% | 0.23% |

Growth Rate |   | 3.14% | 7.89% | 0.27% | 6.06% |

* Inefficient Management

* Analysis of ROA and ROE:

ROA of Kroger Company shows inefficient management as it is lower compared to industry leader in Winn Dixie Stores. Similarly for ROE, Kroger has is amongst the highest in the industry suggesting company is capable of generating cash internally. For the most part, the higher a company's return on equity compared to its industry, the better. So Kroger has inefficient management but ability to generate the cash better than peers making it attractive acquisition target.

* Undervaluation of a firm

* Analysis of Market to book ratio:

Market to book ratio of the Company is less than one which shows that the firm is undervalued in the market making it an attractive acquisition target. Kroger has ratio of .7 which strongly suggests that company is undervalued...