Strategic Audit of RadioShack Corporation

Strategic Audit of RadioShack Corporation

Introduction

RadioShack Corporation (formerly Tandy Corporation) (NYSE: RSH) is a chain of electronics retail stores in the United States, as well as parts of North America, Europe, South America and Africa. As of 2008, it had 4,653 company-owned stores, 688 kiosks, 8 service centers, and 1,408 dealer outlets. RadioShack reported net sales and operating revenues of $4.81 billion. RadioShack briefly reopened stores in Canada after losing its former subsidiary InterTAN (independent since 1986) to a purchase by Circuit City in 2004.

However, in December 2006, RadioShack Canada announced it would be closing its nine corporate stores to focus on strengthening its core business in the US. The headquarters of RadioShack is located in Downtown Fort Worth, Texas.[1] RadioShack is also a sponsor for the Samsung/RadioShack 500 NASCAR Sprint Cup Series race at Texas Motor Speedway. On July 21, RadioShack announced that they will partner with T-Mobile USA, and will start to offer the service beginning August 19.

Financial Highlights (2008)

Total Revenue

37,843,000,000

EBITDA

8,872,000,000

Operating Income

7,404,000,000

Net Income

4,427,000,000

Total Assets

62,497,000,000

Current Assets

11,666,000,000

Total Liabilities

30,174,000,000

Current Liabilities

11,591,000,000

Long Term Debt

11,351,000,000

Stockholders' Equity

32,323,000,000

Financial Performance

In the current situation of Radio Shack, ratio analysis possess a very important role in determining the past, present and future outlook of the company. Ratio analysis is the most extensively used form of financial analysis. In this section, ratio analysis is aimed at characterizing the firm in a few basic dimensions considered fundamental to assess the financial health of Radio Shack. We will compare the ratios of 2007 and 2008 in order to determine the financial health of Radio Shack

Profitability Ratios

Profitability ratios are the projection of how successfully the firm is managing its assets and debts. Actually, profitability ratios measure the ability of the firm to generate earnings or how successfully the firm has generated earnings over a period of time. Profitability ratios are the indicators of the success or failure of the firms' activities.

ROA = Net Income + Interest Expenses/Total Assets

ROA 2008 = (4,397,648+22,969) / 11,817,756

= 37.4%

ROA 2007 = (1,667,985 + 71,943) / 6,592,536

= 26.4%

The return on assets ratio shows that how effectively the assets of Radio Shack are working to generate profit. According to the situation of the above calculated figures, we can say that the return on assets has increased. This is a positive sign for the company as its earnings are increasing in accordance with the assets.

ROE = Net Income + Interest / Common Equity

ROE 2008 = (4,397,648+22,969) / 7,615,512

= 58%

ROE 2007 = (1,667,985 + 71,943) / 3,217,864

= 54%

Return on equity ratio is a comparison of the amount of earnings and the shareholders' equity. This ratio shows the investors that how much the company has earned in contrast to the amount of shareholder' equity. The trend in the return on equity is positive. This means that the earnings are increasing in comparison to the shareholders' equity.

Sales Margin = (Sales - Operating Expenses) / Sales

Sales Margin 2008 = (34,937,800 -9,293,962) / 34,937,800 = 73.4%

Sales Margin 2007 = (17,785,896 -5,162,044) / 17,785,896

= ...