Assessing how well a companys strategy is presently working involves evaluating the strategy from both a qualitative
Question:
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:
- Gross profit margin.
- Operating profit margin.
- Net profit margin.
- Times interest earned coverage.
- Return on shareholders’ equity.
- Return on assets.
- Debt-to-equity ratio.
- Days of inventory.
- Inventory turnover ratio.
- 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%)
- Gross profit margin.
- Operating profit margin.
- Net profit margin.
- Return on shareholders’ equity.
- Net Return on assets.
- Times-interest-earned (or coverage) ratio.
- Debt-to-equity ratio.
- Days of inventory.
- Inventory turnover ratio.
- Average collection period.
Systems analysis and design
ISBN: 978-0136089162
8th Edition
Authors: kenneth e. kendall, julie e. kendall