TP3: Analysis and Comparision of Companies Based on Financing Activities

Each of the three companies analyzed improved its liquidity during 2006 with each posting a current ratio of 1.5. The improved ratios can be attributed to increased sales and tremendous growth of the companies. Cabela’s experienced the greatest growth in working capital at 130%, while Costco experienced the worst with a 72% decline.

The three companies approach financing of long-term debt in different ways. Costco’s old debt is becoming current as evident by a 69.70% decrease in long-term debt and a 9466% increase in the current portion of long-term debt. Cabela’s increased its long-term debt by 214% from the issuance of a large note. Dick’s long-term debt increased 12.26%, primarily due to increases in non-cash obligations and deferred revenue. The ratios of assets-to-long-term debt for Costco, Cabela’s and Dick’s were 38.22, 4.40 and 3.93, respectively.

Costco has the lowest ratio of assets-to-equity of 1.91 revealing the company’s ability to fund asset expenditures internally, while Dick’s had the highest at 2.46 revealing its use of debt and other instruments for financing. Costco had the highest earnings per share at $2.37, while Cabela’s had the lowest of $1.32. Costco, Dick’s and Cabela’s all trade on the New York Stock Exchange and the current price per share of each company’s stock is $71.84, $31.98 and $15.94, respectively.

Dick’s had the highest return on equity at 18.14%, but the company also had the highest debt to assets ratio which could be boosting return on equity inflating debt figures. But, overall Dick’s could arguably be the most attractive company because of its maturity and internal growth. Costco’s weakening operating capital and Cabela’s large note that increased its long-term debt all warrant red flags in the financing section of the cash flow statements. Dick’s has stayed away from high-risk financing activities and has grown from funds generated internally while, for the most part, still posting numbers at or better than the competition.

Review company specific analysis:

Cabela's

Dick's Sporting Goods

Costco