Just For Feet, Inc. operates retail stores in the brand name athletic and outdoor footwear and apparel market. Just for Feet was found in 1977 with the opening of a small mall based store and opened its first super store in 1988. Because of their success and high sales volume generates by the large store Company has concentrate primarily on develop and refining its superstore concept. As of January 1999, they operate 120 superstores, which 23 superstores opened in fiscal 1997 and 26 superstores opened in fiscal 1998.
Just for Feet plans to open 25 stores during fiscal year 1999 and 2000. In 1997, Just for Feet acquired Athletic Attic and Imperial Sports, which are now operated as the specialty store division of the Company. As 1999, the company opened 141 company owned specialty stores. The company opened 51 new specialty stores in fiscal 1998 and plan to open proximally 60 new specialty stores in fiscal 1999 and proximally 50 to 100 in fiscal 2000.
Historically, analysis has regarded a current ratio of 2. 00 to be the normal. Just for Feet has a current ratio of 1. 998 in 1998 and 3. 387469 in 1999, this was a good improvement on the liquidity measure to pay current liabilities. The current ratio can give a sense of the efficiency of a company’s operating cycle or its ability to turn its product into cash. Quick ratio is a variation of the current ratio, the only difference is that it ignore inventory on the basis that inventory is current asset that is the furthest removed from cash. Inventory is excluded because some companies have difficulty turning their inventory into cash. Just for Feet has a quick ratio of 0. 674598 for 1998 0. 373715 for 1999. Just for feet is planning to open approximately 150 stores from 1999 and 2000, they had acquired more inventory to supply to their new stores. This is the main reason of why the current ratio is up and the quick ratio is down. Just for Feet has invest most of its cash to open their new super stores and specialty stores. Net working capital is the difference between current asset and current liability. This measure reports the dollar difference between current assets and current liability.
This measure reports the dollar amount of long term funds used to finance current assets if net working capital is positive or the dollar amount of current liability financing fixed or long term assets if net working capital is negative. It is a measure of both a company’s efficiency and its short-term financial health. Just for Feet has a net working capital of $155,461 in 1998 and $316,798 in 1999. Just for feet NWC has increase from 1998 to 1999 this is a good sign that Just for Feet has the ability to pay off its short term liabilities.
Working capital requirement is the required value of funds that a company is required to keep on hand in order to be able to pay its debt obligations and other business related expenses. Just for Feet had $166,860 for 1998 and $311,025 for 1999; these represent the spontaneous uses and sources of funds over the firm’s operation cycle. Net liquidity balance is a measure that examines a company’s net liquid financial assets. The net liquid assets show how much of a company’s liquid assets would be left if all current liabilities were paid off.
Just for Feet has a liquidity balance of $79,268 in 1998 and $5,773 on 1999. Just for Feet has decreased it their ability by $73,495 but is still able to pay its current liabilities. The company has increased their short term liability but still can pay their debt. Cash conversion efficiency indicates the degree of efficiency of a firm’s financials supplies chain including efficiency and the management of its receivables, payables and inventory. Cash conversion efficiency is -0. 0551231 in 1998 and -0. 105915 in 1999.
The company cash conversion efficiency is negative in 1998 an 1999 the level of profitability impact this amount. The company invests for the new stores and this is hurting the company ability to pay its debt. The cash flow statement is $-26384 for 1998 and $-82070. For 1999 is negative because they have increase in A/P from $51,162 to 100,322 and increase in inventory from 206,128 to 399,901, the accrual account expenses went from $9,292 to $24,829. All this changes made the CFFO give negative results. The Account payable increased to $ 100,332.
All this accounts are making the difference in the cash flow. A/R has not had much money in its account $15,840 for 1998 and $18,878 for 1999. Cash conversion period is use to analyze cash cycle and it is an approach measure liquidity. Days inventory held is the number of days from receiving the item until they actually sell it. Just for Feet held its inventory for 268. 88 days in 1998 and 322. 69 in 1999 between the receipt days an item until it was sold to the customer. Days of sales outstanding average of days that it takes for customers to pay for merchandise.
Just for Feet took 12. 08 days to pay for the merchandize in 1998 and 8. 89 days in 1999, the day of sale outstanding average show that just for feet has a strict policy on the payment of their product. Day pay outstanding is the days between the inventory is received and when payments are made, Just for Feet took 66. 74 days to pay their outstanding in 1998 and 80. 95 in 1999. Just for Feet is taking longer to pay their supplies. Operation Cycle is an indicator of management performance efficiency, Just for Feet operation cycle is $28,096 in 1998 and 331. 58 in 1999.
Cash operation cycle is the elapse between the firm’s payment for their inventory and the company payment for its finish goods. Just for Feet CCP is 214. 22 days for 1998 and 250. 63 days for 1999 the grader the cash conversion period the grader the financial strain on the firm o less liquidity. The rapid growth of Just for feet is putting strain on liquidity, as the company growths and opens new stores they need to finance the purchase of addition assets to support the higher level sales. The company has not made enough cash flow from operations to support the addition of debt.
The substantial growth rate is 8. 66% and the Actual growth rate is 62%. Just for Feet is growing too fast too soon and could get in to trouble in the long run. They are opening to many stores in a short period of time. Just for feet is growing too quick and it is finding difficult to fund the growth it has increase financial leverage. Just for Feet will open proximally 160 stores by 1999 and 25 superstores during fiscal 1999 and 2000. As a result of the store opening the company had to acquire more inventories and increase their long term debt tremendously, as well as account payables.
Company ability to pay their short term debt has decrease. Opening new stores can be profitable in the long run. Some of Just for Feet problems of growing too fast and will be that they will lose control of the company; they will have to borrow too much. They could also losing focus on the details that are critical to your quality, customer service and employee morale; Out run their vendors and service providers, materials and equipment, staff and their time, skills and experience; Damaging quality relationships with existing clients while all your focus is on getting expand business.