Profitability
From the Financial Ratios & Valuation, we could see that the overall ratios decrease slightly,
• Gross margin ratio drops from 30.4% in 2016 to 30.3% in 2018
o indicates Dollar Tree makes less profit in 2018 than in 2016 after paying off its cost of goods sold
• Net Margin ratio drops from 7.6% in 2016 to 4.3% in 2018
o indicates that Dollar Tree might earn less net income but make higher net sales
• Return on assets ratio drops from 7.1% in 2016 to 4.3% in 2018
o indicates that Dollar Tree might earn less net income but have higher average total assets
, except for Return on Equity Ratio which suffer a loss from 2016 (7.1%) to 2017 (5.8%) but later increases in 2018
(9.5%). This indicates that Dollar Tree has a weaker ability to generate profits from its shareholders investments.
To conclude, the profitability of Dollar Tree in 2018 is degraded.
Liquidity
From the Financial Ratios & Valuation, we could see that
• Working capital ratio increases from $2,208.2 in 2016 to $2,613.8 in 2018
o indicates that Dollar Tree might have higher current assets with lower current liabilities
• Current ratio increases from 1.5 in 2016 to 1.9 in 2018
o indicates that Dollar Tree might have higher current assets with lower current liabilities
However, the current cash debt coverage drops from 53.8% in 2016 to 42.1% in 2018. This indicates that Dollar Tree
has lower ability to pay its current liabilities from its operations.
To conclude, the liquidity of Dollar Tree in 2018 is degraded although the total amount of current assets is increased,
but this amount is not generated by operating activities, maybe is from owner’s capital.
Solvency
From the Financial Ratios & Valuation, we could see that