Rue 21 is a fashion forward retailer specializing in trendy assortments for young adults. The company has roughly 900 locations in 47 states in the U.S. The company attempts to attract consumers who are fashion oriented but looking for fair value in their purchase.
Current situation of the company financially
To begin current assets are assets on a company's balance sheet that will be consumed and converted to cash within one year. These assets could included marketable securities such as treasuries or inventory expected to be used within a year. In some firms, unfinished goods may be considered current assets as inventory. Prepaid expense and marketable securities are also counted as current assets. In the instance of Rue 21, the company currently has over $41 million in cash on its balance sheets. This is considered an "asset" although the company is not deploying the cash in any meaningful manner as of yet. In addition, the company also owns over $30 million dollars of marketable securities which are providing adequate yield to the company (Ryan, 2004).
A long-term asset is one in which the company is expected to convert the asset into cash in over a year. These assets are long-term in nature and are often fixed. Aspects such as a new building, property, and equipment are all considered long-term assets. In regards to Rue 21, the company currently has over $117 million in property, plant, and equipment alone. The company also books intangible assets at roughly $1 million.
Current liabilities are those that are due within a year. These liabilities are short-term in nature and often require immediate payment. In regards to Rue 21 examples of current liabilities include accounts payable of $133 million, and $0 in debt. Long-term liabilities are those which are due after one year. Rue 21 is unique in that is has $0 in long-term debt. The company has large amounts of cash with no debt. This places the company on sound financial footing as compared to other companies within its peer group (Rich, 2001).
Discussion on retained earnings
Retained earning are arguable the most important earnings for the company. Retained earnings are earnings that are not paid out to shareholders in the form of dividends or stock repurchases. Instead, the earnings are retained in the business in hopes of generated still further increases in earnings. This is very beneficial to both Rue 21 and its competitors can solidify their respective places in the competitive landscape of business. Retained earnings also allow both companies to pursue positive net present value projects which will help create shareholder wealth. This is particularly important if Rue 21, H & M, or any other competitor can partake in projects that above the prevailing rate of return in the market. If both companies can get a better return on their retained earnings, over time, the company will flourish and prosper. Over the past two years, both companies have increased their retained earnings while increasing the dividend very minimally.
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