Financial Analysis Report

Part $1$: Key Financial Ratios $(20182019)$

RatioFormula$20182019$Return on Assets $($ROA$)$Net Income $/$ Total Assets$0\mathrm{.}0860\mathrm{.}115$Return on Equity $($ROE$)$Net Income $/$ Total Equity$0\mathrm{.}1050\mathrm{.}137$Cash RatioCash $/$ Current Liabilities$2\mathrm{.}6783\mathrm{.}447$Inventory TurnoverTotal Revenue $/$ Inventory$7\mathrm{.}4458\mathrm{.}862$

All ratios have been rounded to the nearest thousandth as required.

Part $2$: Annual Growth Activity $(20182019)$

ItemGrowth Rate FormulaGrowth RateTotal Revenue$(20192018)/2018$Approx. $14\mathrm{.}0\%$Cost of Revenue$(20192018)/2018$Approx. $7\mathrm{.}0\%$

Part $3$: Short Answer Questions

$1.$ Explain the meaning of inventory turnover in year $2018.$

In $2018,$ Peloton had an inventory turnover ratio of $7\mathrm{.}445.$ This means the company sold and replaced its inventory approximately $7\mathrm{.}45$ times over the course of the year. A higher turnover ratio generally indicates strong sales performance and efficient inventory management. However, if too high, it could also imply inadequate stock levels and risk of stockouts.

$2.$ Explain the implications of the growth rates of total revenue and cost of revenue.

From $2018$ to $2019,$ total revenue increased by approximately $14\%,$ while the cost of revenue only increased by $7\%.$ This disparity suggests that Peloton improved its gross margin and operational efficiency. In other words, the company was able to generate more revenue without a proportional increase in direct costs, which is a positive indicator of growing profitability and improved cost control.