One of the things that the chapter touches on is creating barriers to entry. One of those barriers to entry is economies of scale.
Because companies like Target and Best Buy have failed to create economies of scale, Amazon.com has taken huge chunks of sales away from many traditional mortar and brick stores. Dick's Sporting Goods could be placed under that category, but unlike many similar to it, Dick's has created economies of scale in relation to Amazon and here's why…
-Dick's has over a 7% advantage over Amazon when it comes to operating margin which means that Dick's is turning its sales into profits while Amazon makes less as it continues to grow.
-Dick's free cash flows are nearly even with Amazon's which is a feat in itself because Amazon is enormous compared to DSG.
-DSG has even surpassed Amazon in net income, even though this can be attributed to different strategies.
-Another reason DSG can still create an economy of scale to Amazon is because they offer products that can't be found on Amazon at all. Of 190 of DSGs top products only 12 were sold and shipped by Amazon, and 55 of the products couldn't be found on Amazon at all. Guns and ammo are a large part of DSGs sales and can take credit for keeping Amazon away from DSG…for now.
http://www.forbes.com/sites/ycharts/2013/06/26/how-dicks-manages-to-fight-off-amazon/
Thursday, January 30, 2014
Monday, January 20, 2014
Dick's Sporting Goods: Chapter 2. Firm Performance and Competitive Advantage
DSG has done a great job a having a "sustained" competitive advantage. Over the last few years DSG has rose above its competitors into a class of its own. Aside from increasing annualized total return of 55.9%, it has all of the measurables you would look for when it comes to numbers. For the purpose of this blog assignment I will include some percentages that can be seen in Chapter 2 of our textbook using some simple and adjusted accounting measures.
Altman's Z-score ratio: 6.45
P/E ratio: 22
Current Ratio: 1.5
Debt to Equity: 0.01
Inventory Turnover: 3.7
Tobin's Q ratio: 2.51
The z-score ratio is a ratio that will determine the probability that a firm will declare bankruptcy. If the score is less than 1.8, it will fail. If it is between 1.8 and 3.0, it will probably not fail. If it is above 3.0, it will not fail. DSG's score of 6.45 is far above concern and can show a good competitive advantage.
Tobin's q is the ratio of a firm's market value to the replacement cost of its assets. Anything greater than 1.0 is an indicator that a firm is generating superior performance. DSG's is 2.51.
All of the above information can be found below on the links provided and will provide even more evidence why DSG is sustaining a competitive advantage.
http://www.advfn.com/exchanges/NYSE/DKS/financials
http://www.newsmax.com/Companies/Dick-s-Sporting-Goods-DKS/2012/02/29/id/431009
DSG has done a great job a having a "sustained" competitive advantage. Over the last few years DSG has rose above its competitors into a class of its own. Aside from increasing annualized total return of 55.9%, it has all of the measurables you would look for when it comes to numbers. For the purpose of this blog assignment I will include some percentages that can be seen in Chapter 2 of our textbook using some simple and adjusted accounting measures.
Altman's Z-score ratio: 6.45
P/E ratio: 22
Current Ratio: 1.5
Debt to Equity: 0.01
Inventory Turnover: 3.7
Tobin's Q ratio: 2.51
The z-score ratio is a ratio that will determine the probability that a firm will declare bankruptcy. If the score is less than 1.8, it will fail. If it is between 1.8 and 3.0, it will probably not fail. If it is above 3.0, it will not fail. DSG's score of 6.45 is far above concern and can show a good competitive advantage.
Tobin's q is the ratio of a firm's market value to the replacement cost of its assets. Anything greater than 1.0 is an indicator that a firm is generating superior performance. DSG's is 2.51.
All of the above information can be found below on the links provided and will provide even more evidence why DSG is sustaining a competitive advantage.
http://www.advfn.com/exchanges/NYSE/DKS/financials
http://www.newsmax.com/Companies/Dick-s-Sporting-Goods-DKS/2012/02/29/id/431009
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