Asset Recognition

Cash Liquidity: 

Cash Ratio

Figure 1 compares the cash ratio of BURL with its two competitors, TJX and ROST, over a span of 5 years. While there isn't an exact ideal cash ratio, a ratio falling between 0.5 and 1 is generally recommended. Since only cash and cash equivalents are considered in calculating the cash ratio, it serves as a valuable indicator of a company's liquidity and its ability to promptly meet short-term obligations.

Over the course of these 5 years, only ROST consistently achieved a cash ratio of 1 or above, indicating its robust financial position and capacity to fulfill short-term liabilities without relying heavily on external financing or asset liquidation.

Conversely, BURL and TJX typically maintained similar cash ratios, nearing a ratio of 1 only in FY 2022. However, for FY 2023, both companies experienced a decline in cash ratio, dropping below 0.5 primarily due to an increase in total current liabilities. This suggests that both BURL and TJX need to address these areas to safeguard their financial well-being and provide investors with a clearer perspective on their companies.

Source:Cash Ratio - Definition, Free Download, Template (corporatefinanceinstitute.com) 

Current Ratio:

The current ratio evaluates a company's ability to handle its short-term financial obligations by assessing its capability to utilize short-term assets. The determination of an optimal current ratio varies across industries but typically falls between 1.5 and 3, signaling financial health. Ratios below 1 often indicate liquidity challenges, while those exceeding 3 may suggest inefficient working capital management.

Although ROSS has the highest current ratio over the years, BURL and TJX are not far behind. They all have ratios above 1 for most of the years indicating adept management of current assets to fulfill short-term obligations.

Source: Current Ratio Explained With Formula and Examples (investopedia.com), Current Ratio Definition | Investing Dictionary | U.S. News (usnews.com) 

Accounts Receivables:

Accounts Receivable as a Percent of Total Assets

Figure 4 depict the percentage of a company's assets that is tied up to its accounts receivables. It helps assess a company's ability to convert sales into cash and manage its working capital effectively. In this case a low percentage is recommended which suggests that the company has a low amount of its assets tied up to its accounts receivables which in turn indicates that the company is efficient at managing its credit and collection processes. BURL and ROST have the lower percentages compared to TJX. This suggests that a significant portion of the TJX assets are tied up in accounts receivable, which may indicate slower cash flow and potential collection issues.

Days Sales Outstanding

Days sales outstanding help assess the effectiveness of a company's credit and collection processes, its liquidity, and its overall financial health. It is the number of days it takes a company to collect payment after making a sale. 

Consistent with the preceding analysis, TJX typically exhibits a longer days sales outstanding compared to BURL and ROST throughout most years. This suggests that TJX takes more time to collect payments subsequent to sales transactions. Conversely, BURL and ROST demonstrate lower and similar numbers of days, aligning with the earlier analysis.

Inventory:

Inventory Turnover in Days

Inventory turnover in days measures the average number of days it takes for a company to sell its entire inventory and replace it with new inventory. It provides insights into the efficiency of a company's inventory management and the frequency with which it sells and restocks its inventory.

BURL and TJX demonstrate a higher inventory turnover in days compared to ROST. The elevated inventory turnover in days for BURL suggests rapid inventory turnover, indicating strong sales, efficient inventory management, and improved liquidity. BURL articulates this approach in their 10K statement, emphasizing their commitment to enhancing customer service and maximizing sales by continuously refining their merchandise assortment and inventory levels. Through effective inventory management practices, BURL aims to ensure a consistent supply of fresh merchandise to meet customer demand. This strategy involves maintaining popular products in stock and employing various methods, such as price adjustments, to expedite sales and optimize inventory turnover. 

Source: 2023 Burlington Stores 10K

Accounts Payable:

Days Payable Outstanding

Figure 7 illustrates the average duration it takes for a company to settle payments with its suppliers for goods or services obtained on credit. This metric offers insights into the company's effectiveness in managing its accounts payable and its relationships with suppliers.

Throughout the 5-year period, BURL consistently demonstrates a high day payable outstanding (DPO), which can be interpreted in different ways. On the one hand, this suggests that BURL delays payments, potentially utilizing available cash for short-term investments and bolstering working capital and free cash flow. However, it's worth noting that while higher DPO values are generally desirable, they may not always indicate a positive outcome for the business, as they could imply cash shortages and an inability to fulfill payment obligations.

Source: Days Payable Outstanding (DPO) Defined and How It's Calculated (investopedia.com) 

Cash Collection Cycle:

Cash Collection Cycle

The cash collection cycle represents the number of days it takes for a company to collect its accounts receivable. BURL exhibits the highest number in this metric, which aligns with its performance in the previously discussed metrics—specifically, DPO and Inventory Turnover days. Generally, it's advisable to keep the cash collection cycle as short as possible. Swift collection translates to increased available cash, reducing the need for borrowing. However, a longer cash collection cycle might be acceptable if management adopts a lenient credit policy, extending credit to riskier customers with lower likelihoods of payment.

Source: Cash collection cycle definition — AccountingTools 

Long Term Fixed Assets:

Fixed Assets as a Percent of Total Assets

Fixed assets as a percent of total assets assess the proportion of a company's assets that are fixed in nature, such as property, plant, and equipment (PP&E), compared to its total assets. It provides insights into the composition of a company's asset base and its capital structure.

Over the years, with the exception of FY 2019, all three companies have seen modest increases in their fixed assets. Notably, BURL boasts the highest proportion of fixed assets relative to total assets. This aligns with their strategic objective of consistently expanding and enhancing their retail store base. 

PPE Turnover

PPE turnover, also known as Property, Plant, and Equipment turnover, evaluates how effectively a company is generating revenue from its investment in property, plant, and equipment (PPE). It offers insights into the efficiency of utilizing fixed assets. 

Over the past five years, TJX has consistently demonstrated the highest PPE ratio, while BURL has lagged behind. This discrepancy suggests that BURL may not be effectively leveraging its fixed assets to drive revenue, potentially indicating underutilization. Alternatively, the lower PPE ratio for BURL could be attributed to the opening and closing of new stores. On the other hand, TJX's consistently high ratio indicates efficient utilization of its assets.

Link to excel file