final project FA

final project FA - Financial Analysis on Department Store...

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Financial Analysis on Department Store Macy’s with Its Competitors JC Penny and Kohl’s Financial Accounting 221 Fall 2010 Colby College Mugyenzi Innocent My Le Kara Jun Ma Part I: Introduction Macy’s, Inc. (Macy’s), is a marketing organization, which is formerly known as Federated Department Stores, Inc. It is principally engaged in operating departmental stores, selling apparels and related products. The company's product line includes apparels for men, women and children, accessories, footwear, cosmetics, home furnishings and other consumer goods. In addition, it sells a wide range of merchandise online. The company’s operations were carried under four divisions such as - Macy’s, Bloomingdale, macy’s.com and bloomingdales.com. Macy’s, Inc., along with its
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subsidiaries, principally operate in 45 states of the US, District of Columbia, Guam and Puerto Rico. Macy’s primary costs are Cost of Goods Sold and SG&A Expenses. Its general asset requirements comprise of Cash and Cash Equivalents, Inventories, Property and Equipment and Goodwill – its key assets being the latter three. Macy’s is financing most of its assets by loans, but its proportion of assets financed by equity is increasing over years but Macy’s finances with one of the greatest proportion of debt in the industry. The key driver for this company’s profitability is the high Account Receivable Turnover Ratio, which allows the company to turn its sales on accounts to cash quickly, and its high Profit Margin. Part II: Profitability Analysis Time-series analysis of Returns on Assets (ROA) By analyzing probability, we first look at Macy’s overall returns on assets ratio (ROA), which measures a firm’s performance in using assets to generate net income independent of how the firm financed the acquisition of those assets. The ROA answers the question of how well the firm has done over the time. Macy’s ROA in 2007 was 4.9%, indicating that for each dollar of assets used, Macy’s earned $0.049. ROA of Macy’s decreased from 2007 to 2008, but increased again to 2.9% in 2009—still lower 2
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than ROA in 2007. So in general, returns on assets of Macy’s decreased over the time, indicating a mediocre business performance. The first factor of ROA, which is the total assets turnover ratio, shows a pretty steady trend from 2007 to 2009 with a subtle increase from 0.917 to 0.94. Total asset turnover ratio, which is influenced by accounts receivable turnover, inventory turnover, and fixed asset turnover, measures a firm’s ability to generate sale from a particular level of investment in assets, or alternatively, to control the amount of assets it uses to generate a particular level of sale. The reason of Macy’s total asset turnover ratio being stable is that three sub-turnovers remain steady throughout the time. From accounts receivable turnover, we find out that it generally takes Macy’s 5 to 6 days to collect receivable; inventory turnover shows that the inventory of Macy’s remains for 106 days before sale;
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This note was uploaded on 10/27/2011 for the course ECON 125 taught by Professor Diannelabert during the Spring '11 term at Hamilton College.

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final project FA - Financial Analysis on Department Store...

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