Feet Case

1.Think about Just for Feet’s operating strategy. What are the potential costs and benefits of this strategy? What financial indicators would you want to closely monitor and why?

According to the operating strategy, we can see that this company has high level of customer service and inventory, large number of superstores, extensive advertisements and special shopping environment. For the benefits, high level of customer service and shopping environment will leave a good impression on customers and make FEET more competitive to other companies. What’s more, frequently advertisement will generate more store visit and high inventory level will avoid the break of supply chain. However, these strategies also have some disadvantage. For example, high level of customer service means company has more training and labor cost. High inventory will also occupy a large amount of operating cash flow. I would monitor the current ratio (to measure whether the company have enough current asset), inventory turnover (to see how many times the company turnover its inventory).

2.What would you say in an analyst report about the company’s profitability over the last three years? Has performance been improving or getting worse? Why?

FEET’s profitability increased over the last three years according to its return on equity and return on asset. Its ROE increase from 7.57% to 8.98%. ROA increased from 4.67% to 5.56%. When we decomposing ROA, we can find that PM decreased by 27.7%(5.64% to 4.08%), but AT increased by 63.9%. Therefore, the efficient on assets using counts more for the increase in ROA. And the improve of ROA indicates that the company performed better over the last three years.

3.What would you say in an analyst report about the company’s liquidity and solvency? What options might be available to finance the company’s future growth?

For the liquidity, the current ratio (1999) for FEET is 3.39, quick ratio is 0.24, adjusted quick ratio is 0.04. The current...