Managerial Finance Essays Examples

Whether or not a company has durable competitive advantage is determined through various factors such as intangible assets, return on invested capital, positive cash flows from operating activities, profit margins, free cash flows, liquidity ratios, coverage ratios, leverage ratios and growth rates.
For the company Bed Bath & Beyond Inc, we see that the return on invested capital has remained in the range of 21% to 26% for the last five years as compared to industry average of 8 to 12%. Also, the gross margin has remained around 39% to 41% range, when more than 40% gross margin shows durable competitive advantage. In terms of net margin though, the value has remained in a range of 8 to 10%, where less than 10% net margin shows a highly competitive industry.
The free cash flow margin has remained between 7% and 10% in the last five years, when margin above 10% is considered to be a sign of competitive advantage. As regards short term health, while current ratio has consistently remained above 2, quick ratio has fluctuated between 0.67 and 1.59. The interest coverage ratio has been very volatile and has been less than the minimum required threshold in the last three years, while operating cash flow ratio has consistently remained below 1. Leverage ratios are well within the maximum limit.
Piotroski screening criteria shows that with a score of 4, the company is neither very strong nor very weak. On the other hand, Altman Z score of 5.94 shows that the company is safe and not likely to default. Further, the margin of safety is very low with price to book ratio also low.
So although the company is above the minimum threshold in few criteria, overall, the company does not appear to have a durable competitive advantage.