Analyze the financial statements for Signet Jewelry
Rebecca Cline
Continue to analyze the financial statements for Signet Jewelry for this week’s discussion.
Current ratio 2020 = 1.91
Quick ratio 2020 = .50
Current ratio 2019 = 2.76
Quick ration 2019 = .45
IBISWorld Current Ratio 2020 = 1.6
IBISWorld Current Ratio 2019 = 1.6
IBISWorld Quick Ratio 2020 = 0.8
IBISWorld Quick Ratio 2019 = 0.7
The current ratio is a liquidity ratio that allows for measurement of a company to be able to pay their short-term obligations. A good current ratio is considered anything between 1.5 and 2 (Porter & Norton, 2018). Signet Jewelers current ratio was in the “good” range in 2020 while in 2019, the ratio was 2.76 which indicates that the company has a surplus of income available to cover debts. The decrease in current ratio between 2019 and 2020 can be seen as concerning, but the fact that the ratio is still good would indicate that although it should be on the radar, is not of immediate concern. The current ratio of Signet Jewelers is higher than that of the IBISWorld average (IBISWorld, n.d.), which indicates that Signet Jewelers is in a good position to be able pay their short-term obligations (FY 2020 Annual Report, 2020).
The Quick ratio measures the amount, in dollars, of liquid assets that are available in comparison to the amount, in dollars, of current liabilities. A quick ratio of greater than 1 is considered a good ratio. A ratio of over 1 means that the company is healthy and can pay its liabilities (Porter & Norton, 2018). In 2020, Signet Jewelers had a quick ratio of .5 and in 2019, it was .45. The IBISWorld average quick ratio for Jewelers stores was .8 in 2020 and .7 in 2019 (IBISWorld, n.d.). Over all the quick ratio of Signet Jewelers is lower than what is considered a good ratio and is also lower than that of the average presented by IBISWorld (FY 2020 Annual Report, 2020,).
Signet Jewelers did not have any significant changes from 2019-2020 in regards to current assets and current liabilities. In 2020, there was an increase in current liabilities that was larger than the increase in current assets, which lead to the decrease in current ratio. In 2020, Signet Jewelers began to carry operating lease liabilities in their current liability, which has not been present in 2019. There is a note in the annual report that states “Signet occupies certain properties and holds machinery and vehicles under operating leases” (FY 2020 Annual Report, 2020, pg. 94). The annual report goes on to state that “Operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liabilities in the Company’s consolidated balance sheets” (FY 2020 Annual Report, 2020, pg. 94).
Signet Jewelers defines contingent liabilities as “Provisions for contingent liabilities are recorded for probable losses when management is able to reasonably estimate the loss or range of loss. When it is reasonably possible that a contingent liability may result in a loss or additional loss, the range of the potential loss is disclosed” (FY 2020 Annual Report, 2020, pg. 73). Signet Jewelers carries operating lease liabilities on their balance sheet, but does not record contingent property liabilities. The reasoning that Signet Jewelers uses to make this decision is that “The amount of such claims arising to date has not been material (FY 2020 Annual Report, 2020, pg. 111).
Although there is potential for impacting the financial reports if these liabilities come to fruition, the impact is not likely to be significant. I agree with how the company has chosen to treat the contingencies on the financial statement.
If the contingent liabilities were to come to fruition, the impact on the financial statement would be non-material in the eyes of Signet Jewelers. Due to the fact that there is a slight change that these contingent liabilities would come to fruition, the effect on the annual report would not be known until the time that they happen. Although an increase in current liabilities could damage the current ratio as well as the quick ratio, the amount is likely to be non-significant.
The way Signet Jewelers deals with contingent liabilities does not change the assessment of the company.
Resources:
FY 2020 Annual Report. Signet Jewelers. (2020, May 1). https://s26.q4cdn.com/755441662/files/doc_financials/annual/Signet-2020-Annual-Report.pdf.
IBISWorld. (https://www.ibisworld.com/)
Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.com
Answer preview to analyze the financial statements for Signet Jewelry
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