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INDEPENDENT UNIVERSITY, BANGLADESH

FIN-201

Introduction to Finance

Section: 07

Assignment On

Comparing each of the ratios for two years (2019 and 2020)

Submitted To:

Ms. Tasneem Bareen Hasan

Lecturer, Department of Finance

Submitted By:

Sayeda Tanzila Shabazi

ID: 1810088

Date of Submission: 06/05/21

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Contents
 Executive Summary......................................................................................................................3
 About The Company....................................................................................................................4
 Profitability Ratios.......................................................................................................................4
 Asset Utilization Ratios................................................................................................................6
 Liquidity Ratios............................................................................................................................9
 Debt Utilization Ratios...............................................................................................................10
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Executive Summary

In this report, we have compiled data for the company DoorDash for the years 2020 and 2019.
Based on the data of the years 2020 and 2019, I showed their Profit Margins, Return on Asset,
Return on Equity, Total Receivable Turnover, Average Collection Period, Inventory Turnover,
Fixed Asset Turnover, Total Asset Turnover, Current Ratio, Quick Ratio, Cash to Total Asset
and Debt to Total Asset, these are called “Ratio Calculations”. After collecting this information,
we made analysis within the company on which area the company has improved or in which area
it fell off from the previous year.
However, Ratios, trends and other calculations are used to interpret and compare the financial
performance of a company to its industry and to its past results.
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About The Company

DoorDash, Inc. is a company that has an online grocery shopping and distribution service. Its
headquarters are in San Francisco. It is the biggest food distribution organization in the United
States, with a 56 percent market share. In other words we can say DoorDash is a website that
delivers food orders. Customers put an order with one of hundreds of restaurants, and proceed to
pay a delivery charge and tip. The software then sends orders to "Dashers" who have signed up
for it. (wikipedia.org, 2021) (Robert Farrington, 2021)

Profitability Ratios
It allows us to measure the ability of firm to earn adequate return on sales, assets and invested
capital. The higher the ratio, the more profitable the firm will be. Many of the problems related
to profitability can be explained in whole by the firm’s ability to effectively employ its resources.
(wikipedia, 2021)

Profit Margin
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A measure of profitability is the sales margin, net profit margin, or net profit ratio. Profit margin
is an indicator of a company's pricing strategies and how well it controls costs. It is a ratio that
investor used mostly for internal comparison. It is calculated by dividing a company's net income
by its sales. Net profit margin is equal to how much net income is generated as a percentage of
sales. Net profit margin helps investors assess if a company's management is generating enough
profit from its sales and whether operating costs and overhead costs are being contained. Net
profit margin is one of the most important indicators of a company's financial health.
However, DashDoor’s profit margin for 2019 was -75.37% which was extremely bad and in
2020 it was -15.97% which got a lot better of 59.4%. This shows that it made an improvement in
one year due to increase in net income more than sales if we compare this two years. But
DashDoor needs to increase its net income more and lower down its sales in order to increase its
profitability level and to survive in the market, otherwise there might be high chance of risk to
decline of the business.
Return on Assets

Return on assets is a measure of a company's profitability as a percentage of its total assets. The
return on assets informs a manager, creditor, or analyst how effective a company's management
is at generating profits from its assets. The rate of return on investment is expressed as a
percentage. Return on assets is best used when comparing a company to its previous performance
and also gives an idea as to how efficient management is at using its assets to generate earnings.
It is calculated by the net income divided by Total Assets.
However, the return on assets for the year 2020 for DashDoor was -7.26% and for the year 2019
was -38.51% which is not under the standard level of 10%. This means the company is not doing
well since it has a negative value but still it has done well comparing to the previous year of
2019. Therefore, to increase the return on assets DashDoor has to maximize its net income and
lower down its total assets to get a standard profitability to survive in the market.
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Return on Equity

The return on equity is a financial performance indicator that is determined by dividing net
profits by shareholders' equity. Since shareholders' equity equals a company's assets minus its
debt, the return on net assets is referred to as ROE. The return on equity (ROE) is an indicator of
a company's performance in comparison to its stockholders' equity. (JASON FERNANDO,
2021)
Here, in 2020 the return on equity was -9.81% and in 2019 it was -56.43% which means they did
improve like they did in the other profitability ratios but still its negative due to increase in net
profit and decrease in shareholder’s equity. DashDoor has to increase its net profit and lower the
shareholder’s equity to make it a positive to 15%-20%, since this is the standard level of return
on equity and that will make it look like a perfect profitability ratio of the company

Asset Utilization Ratios

The asset utilization ratio calculates the total revenue earned for every dollar of assets a company
owns. It measures the speed at which the firm is turning over accounts receivable, inventory,
long-term assets. In other words it measures how many times per year a company sells its
inventory or collects all of its accounts receivable. (CHarts, 2021)
Receivables Turnover
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The receivables turnover ratio is an accounting measure used to quantify a company's

effectiveness in collecting its receivables or money owed by clients. The ratio shows how well a
company uses and manages the credit it extends to customers and how quickly that short term
debt is collected or is paid. A high total receivables turnover ratio can indicate that a company’s
collection of accounts receivable is efficient and that the company has a high proportion of
quality customers that pay their debts quickly. A low receivables turnover ratio might be due to a
company having a poor collection process, bad credit policies, or customers that are not
financially viable or creditworthy. A company’s receivables turnover ratio should be monitored
and tracked to determine if a trend or pattern is developing over time.
Here, in DoorDash receivables turnover for 2020 was 2.98 times and 2019 was 4.58 times
respectively. More the ratio the best it is. But it didn’t improve to the industry average level
which is 10 times, instead it went lower the standard level and as well as comparing to 2019. So
the company is having a low receivable turnover and can only improve if they upgrade their
collection process and bad credit policies.
Average collection period

The average collection period is the amount of time it takes for a business to receive payments
owed by its clients in terms of accounts receivable. Companies calculate the average collection
period to make sure they have enough cash on hand to meet their financial obligations. Low
average collection periods indicate organizations collect payments faster.it is calculated accounts
receivable by average daily credit sales.
However, DoorDash had an average collection period of 121 days in 2020 and 79 days in 2019
which is further more than the industry average standard of 36 days. They have to increase their
average daily credit sales in order to lower the average collection period.
Inventory Turnover
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Inventory turnover is a ratio showing how many times a company has sold and replaced
inventory during a given period. A company can then divide the days in the period by the
inventory turnover formula to calculate the days it takes to sell the inventory on hand.
Calculating inventory turnover can help businesses make better decisions on pricing,
manufacturing, marketing, and purchasing new inventory. A low turnover implies weak sales
and possibly excess inventory, while a high ratio implies either strong sales or insufficient
inventory.
However DashDoor has a very high inventory turnover of 19.77 times in 2020 and 17.70 times in
2019. But the standard industry average inventory turnover is 7 times, and that DoorDash has
exceeded the standard level. Therefore they have to lower down their inventory turnover slightly
for achieving a balance ratio. However, it’s not even that bad to have a high inventory turnover.
Fixed Asset Turnover

The fixed asset turnover ratio is in general used by analysts to measure operating performance.
This efficiency ratio compares net sales to fixed assets and measures a company's ability to
generate net sales from its fixed asset investments, namely property, plant, and equipment. The
fixed asset balance is used as a net of accumulated depreciation. A higher fixed asset turnover
ratio indicates that a company has effectively used investments in fixed assets to generate sales.
A high fixed asset turnover ratio does not tell anything about a company's ability to generate
solid profits or cash flows. It is calculated by the formula of sales by fixed asset.
Here, DashDoor has a fixed asset turnover of 3.45 times in 2020 and 1.21 times in 2019. They
made not much improvement, but are very close to the standard level of average industry fixed
asset turnover. This increase in fixed asset turnover mean they have effectively used investment
in fixed assets to generate sales and still need to more effective to reach the standard level.

Total Asset Turnover

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The asset turnover ratio measures the value of a company's sales relative to the value of its
assets. The asset turnover ratio can be used as an indicator of the efficiency with which a
company is using its assets to generate sales. The higher the asset turnover ratio, the more
efficient a company is at generating sales from its assets. On the other hand, if a company has a
low asset turnover ratio, it indicates it is not efficiently using its assets to generate sales. This
metric helps investors understand how effectively companies are using their assets to generate
sales. Investors use the asset turnover ratio to compare similar companies in the same sector or
group. A company's asset turnover ratio can be impacted by large asset sales as well as
significant asset purchases each year. They are calculated by sales by total assets.
However, the total asset turnover for the year 2020 was 0.45 times and for the year, 2019 it was
0.51 times, this indicates that the company is not being able to efficiently employ its assets to
generate sales, since it again, the rapid turnover of total assets is lower than the industry average.
DashDoor needs to increase its sales to maximize the asset turnover ratio so that it can reach to
the standard level.

Liquidity Ratios
Liquidity ratio is the ratio between the liquid assets and the liabilities of a bank or other
institution. It measures the company’s liquidity (its ability to pay short-term debts). The higher
the ratio, the lower the risk of inability to pay. (Google, 2021)
Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables. .
These are usually defined as assets that are cash or will be turned into cash in a year or less, and
liabilities that will be paid in a year or less. The current ratio is sometimes referred to as the
working capital ratio and helps investors understand more about a company’s ability to cover its
short term debt with its current assets. Weaknesses of the current ratio include the difficulty of
comparing the measure across industry groups, overgeneralization of the specific asset and
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liability balances, and the lack of trending information. It is calculated by the formula of current
asset divided by current liabilities.
However, DashDoor’s current ratio for the year 2020 was 3.94 times and the current ratio for the
year 2019 was 2.61 times that indicates that the company is still in a good state, but a lower ratio
would have been better but not more than 2.1times, since the 2.1 times is the industry average.
However, further analysis might call for a cash budget to determine if the firm can meet each
maturing obligation as it comes due.
Quick Ratio

The quick ratio is an indicator of a company’s short-term liquidity position and measures a
company’s ability to meet its short-term obligations with its most liquid assets. Since it indicates
the company’s ability to instantly use its near cash assets to pay down its current liabilities. The
quick ratio indicates a company's capacity to pay its current liabilities without needing to sell its
inventory or get additional financing. The quick ratio is considered a more conservative measure
than the current ratio, which includes all current assets as coverage for current liabilities. The
higher the ratio result, the better a company's liquidity, and financial health, the lower the ratio,
the more likely the company will struggle with paying debts. They can be called as the Acid-
test or quick ratio or liquid ratio and are measured with the formula of current asset minus
inventory by current liabilities.
Here the quick ratio for the year 2020 was 3.83 times and 2.48 times in 2019, that indicates that
there is enough current asset for the company without inventory to cover the short-term debt.
This also means the company relies heavily on efficient inventory turnover to keep on running in
the short-term if there’s a decrease in sales the company will not suffer. A company with a quick
ratio of less than 1 cannot currently fully pay back its current liabilities, but DashDoor has more
than industry average to be able to pay its current liabilities.
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Debt Utilization Ratios

Debt utilization ratios are the overall debt position of the company which is evaluated in light of
its asset base and earning power. In other words it measures the company’s ability to pay long-
term debts. The higher the ratio, the less risk of insolvency.

Debt to Total Assets

Debt to total assets is a ratio that defines the total amount of debt relative to assets owned by a
company. Using this method, analysts can compare one company's leverage with that of other
companies in the same industry. This information can reflect how financially stable a company
is. The higher the ratio, the higher the degree of leverage and, consequently, the higher the risk
of investing in that company. The debt to total assets ratio shows the degree to which a company
has used debt to finance its assets. The calculation considers all the company's debt, not just
loans and bonds payable, and considers all assets, including intangibles. It can be calculated by
the formula of total debt by total assets in percentage.
Here, the debt to total asset ratio for the year 2020 was 3.75% and for the year 2019 was 9.64%
this indicates that the financial structure is getting stronger of the company. It will get stronger
even more when it reaches to the industry average of 33% and it can be done if DoorDash can
increase its debt and lower its total assets to gain the standard level.
Times Interest Earned
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Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to

honor its debt payments. The formula for a company's TIE number is earnings before interest and
taxes (EBIT) divided by the total interest payable on bonds and other debt. The result is a
number that shows how many times a company could cover its interest charges with its pretax
earnings.

Here, in DashDoor, times interest earned for the year 2020 was -13.31 times and for the year
2019, there wasn’t any times interest earned, since there were no interest expense for 2019 to
calculate. However in 2020 times interest earned not good for the company as it its negative and
also its not even near the industry average which is 7 times.

Fixed Charges

The fixed charge coverage ratio measures a firm's ability to pay all of its fixed charges or
expenses with its income before interest and income taxes. The fixed charge coverage ratio is
basically an expanded version of the times interest earned ratio or the times interest coverage
ratio. The formula for a company's TIE number is earnings before interest and taxes (EBIT)
divided by fixed charges.

However, DoorDash had -0.61 times of fixed charges in 2020 and -2.62 times of fixed charges in
2019, which mean it improved a lot for the ability to pay its fixed charges but still not enough It
will have to reach near the industry average which is about 5.5 times and can be done only if
they somehow lower down the fixed charges. (Danielsen, 2020)
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References
 CHarts. (2021). Charts. Retrieved from Charts:
https://ycharts.com/glossary/terms/asset_utilization#:~:text=The%20asset%20utilization
%20ratio%20calculates,of%20assets%20a%20company%20owns.&text=An%20increasing
%20asset%20utilization%20means,a%20company's%20efficiency%20over%20time
 Danielsen, B. H. (2020). Foundation of Financial Management. In B. H. Danielsen, Foundation of
Financial Management (p. 681).
 Google. (2021, April). Google. Retrieved from Google: https://www.google.com/search?
q=what+is+liquidity+ratio&hl=en&biw=1366&bih=657&ei=UoWSYJfOBuGH8QOUyJ2wDA&oq=w
hat+is+liquidity&gs_lcp=Cgdnd3Mtd2l6EAEYATICCAAyAggAMgIIADICCAAyAggAMgIIADICCAAyAg
gAMgIIADICCAA6BwgAEEcQsAM6BAgAEEM6BggAEBYQHjoFCAAQsQM6CAgAELEDEI
 JASON FERNANDO. (2021, April 8). Return on Equity. Retrieved from investopedia:
https://www.investopedia.com/terms/r/returnonequity.asp
 Robert Farrington. (2021, May 2). DoorDash Review. Retrieved from thecollegeinvestor:
https://thecollegeinvestor.com/20374/doordash-review/
 wikipedia. (2021). Profit margin. Retrieved from wikipedia:
https://en.wikipedia.org/wiki/Profit_margin
 wikipedia.org. (2021, april). wikipedia, the free encyclopedia. Retrieved from wikipedia.org:
https://en.wikipedia.org/wiki/DoorDash