Assessing how well a company’s strategy is presently working involves evaluating the strategy from both a qualitative standpoint and from a quantitative standpoint. The stronger a company’s current overall performance, the less likely the need for radical strategy changes. The weaker a company’s performance, the more its current strategy must be questioned.

The financial ratios provided in the Appendix are the most commonly used to evaluate a company’s financial performance and balance sheet strength. Assurance of Learning Exercise 4.1 provides you with an opportunity to assess Macy’s Inc., financial performance and balance sheet strength. This exercise requires the same calculations and overall assessment. Before completing this exercise, be sure to read Chapter 4: Evaluating a Company’s Resources, Capabilities and Competitiveness as well as reviewing the Appendix; Key Financial Ratios: How to Calculate Them and What They Mean.

Using the financial ratios provided in the Appendix and the financial statement information for Macy’s Inc. below, calculate the following ratios for Macy’s for both 2018 and 2019:

1. Gross profit margin.
2. Operating profit margin.
3. Net profit margin.
4. Times interest earned coverage.
5. Return on shareholders’ equity.
6. Return on assets.
7. Debt-to-equity ratio.
8. Days of inventory.
9. Inventory turnover ratio.
10. Average collection period.

Consolidated Statements of Income for Macy’s Inc., Feb. 03, 2018–Feb. 02, 2019 (in millions, except per share data)
	2019	2018
Net sales	$24,971	$24,939
Credit Card Revenues, Net	768	702
Cost of Sales	(15,215)	(15,181)
Selling, General, and Administrative Expenses	(9,039)	(8,954)
Gains on Sale of Real Estate	389	544
Restructuring, Impairment, Store Closing, and Other Costs	(136)	(186)
Operating Income/Loss	1,738	1,864
Benefit Plan Income	39	57
Settlement Charges	(88)	(105)
Interest Expense	(261)	(321)
Gains (Losses) on Early Retirement of Debt	(33)	10
Interest Income	25	11
Income (loss) before Income Taxes	1,420	1,516
Federal, State, and Local Income Tax Benefit (Expense)	(322)	39
Net Income (Loss)	1,098	1,555
Net Loss Attributed to Noncontrolling Interest	10	11
Net Income Attributed to Macy’s, Inc. Shareholders	$1,108	$1,566
Basic Earnings per Share Attributable to Macy’s, Inc. Shareholders	$3.60	$5.13
Diluted Earnings per Share Attributable to Macy’s, Inc. Shareholders	$3.56	$5.10

Consolidated Balance Sheets for Macy’s Inc., Feb. 03, 2018–Feb. 02, 2019 (in millions, except per share data)
ASSETS	February 2, 2019	February 3, 2018
Current Assets
Cash and Cash Equivalents	$1,162	$1,445
Receivables	400	363
Merchandise Inventories	5,263	5,178
Prepaid Expenses and Other Current Assets	620	650
Total Current Assets	$7,445	$7,646
Property and Equipment–Net	6,637	6,672
Goodwill	3,908	3,897
Other Intangible Assets–Net	478	488
Other Assets	726	880
Total Assets	19,194	19,583
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities
Short-Term Debt	$43	$22
Merchandise Accounts Payable	1,655	1,590
Accounts Payable and Accrued Liabilities	3,366	3,271
Income Taxes	168	296
Total Current Liabilities	5,232	5,179
Long-Term Debt	4,708	5,861
Deferred Income Taxes	1,238	1,148
Other Liabilities	1,580	1,662
Shareholders’ Equity:
Common Stock (307.5 and 304.8 shares outstanding)	3	3
Additional Paid-In Capital	652	676
Accumulated Equity	8,050	7,246
Treasury Stock	(1,318)	(1,456)
Accumulated Other Comprehensive Loss	(951)	(724)
Total Macy’s Inc. Shareholders’ Equity	6,436	5,745
Noncontrolling Interest	0	(12)
Total Shareholder Equity	$6,436	$5,733
Total Liabilities and Shareholder Equity	$19,194	$19,583

Source: Macy’s Inc., 2018 10-K.

Note: Developed with Meredith Peabody

Using the formulas in the Appendix and Macy’s Inc., financial statements below, calculate the following measures of financial performance. Be sure to report items (a) through € in percentages (i.e., multiply your result x 100 and round to the nearest +/- 0.1%)

1. Gross profit margin.
2. Operating profit margin.
3. Net profit margin.
4. Return on shareholders’ equity.
5. Net Return on assets.
6. Times-interest-earned (or coverage) ratio.
7. Debt-to-equity ratio.
8. Days of inventory.
9. Inventory turnover ratio.
10. Average collection period.