Ali El Ahmar

Accounting and Finance: Managerial Use and Analysis MAR12 Sec C

Professor Blankenship
4/13/2012
Financial Statement Analysis Project -- A Comparative Analysis of Kohl's Corporation and J.C. Penney Corporation
Accounting and Finance: Managerial Use and Analysis MAR12 Sec C
Financial Statement Analysis Project -- A Comparative Analysis of Kohl's Corporation and J.C. Penney Corporation
J.C. Penney was founded by James Cash Penney in 1902. This Plano, Texas
based company is presently providing family apparel and footwear,
accessories, jewelries, beauty products and home furnishings via 1,100
department stores as of December 7, 2011 in the United States and Puerto
Rico. The company is also taking advantage of technology by making JC
Penney's products available online through its Internet Web Site
jcpenney.com. This more than a century old company also provides styling
salon, optical, portrait photography and custom decorating services. The
159,000 present employees are dedicated in rendering outstanding service in
the world of retail.
Kohl's Corporation presently operates 1,127 department stores in 49 states.
This Wisconsin based corporation serves the Unites States via traditional and
online shopping (kohls.com). It offers private, exclusive and national
branded apparel, footwear and accessories for men, women and children.
The company was founded by Max Kohl in 1962 in Brookfield, WI. Today,
30,000 employees are dedicated in leading a family-focused and value-
oriented store in the United States.
Earnings per share As given in the income statement $3.67
Current ratio Current assets $5,645,000,000 = 2.08 $6,370,000,000
Current liabilities $2,710,000,000 $2,647,000,000
Gross Profit Ratio Gross profit $7,032,000,000 = 38.24% $6,960,000,000
Net Sales $18,391,000,000 $17,759,000,000
Kohl's Corporation J.C. Penney Corporation
Profit margin ratio Net Income $1,114,000,000 = 6.06% $389,000,000
Net Sales $18,391,000,000 $17,759,000,000
Inventory Turnover Cost of Goods Sold $11,359,000,000 3.8 $10,799,000,000
Average Inventory $2,979,500,000 times $3,118,500,000
Days in Inventory 365 days 365 = 96 365
Inventory turnover 3.8 days 3.5
Receivable Turnover Ratio Net credit sales = Not Applicable
Average Net Receivables
Average Collection Period 365 = Not Applicable
Receivable Turnover Ratio
Assets Turnover Ratio Net Sales $18,391,000,000 = 1.38 $17,759,000,000
Average Total Assets $13,362,000,000 $12,811,500,000
Return on Assets Ratio Net Income $1,114,000,000 = 8% $389,000,000
Average Total Assets $13,362,000,000 $12,811,500,000
Debt to Total Assets Ratio Total Liabilities $5,462,000,000 = 40.27% $7,582,000,000
Total Assets $13,564,000,000 $13,042,000,000
Times Interest Earned Ratio Net Income + Int Expense + Tax Expense $1,914,000,000 = 13.6 832,000,000
Interest Expense $141,000,000 231,000,000
Payout ratio Cash dividend declared on common stock = Not Applicable $189,000,000
Net income $389,000,000
Return on Common Stockholders' Equity Net income - Preferred stock dividend 1,114,000,000 = 14% $389,000,000
Average common stockholders' equity 7,977,500,000.00 $5,119,000,000
Free cash flow = ($96,000,000)
Free cash flow
Free cash flow per kohl's includes tax benefit
from pension contribution, discretionaty cash
pension contribution and proceeds from sale
of assets on page 15 of the 10K report $915,000,000 = $915,000,000 $158,000,000
Current cash debt coverage ratio Cash provided by operations $1,676,000,000 = 0.66 $592,000,000
Average current liabilities $2,550,000,000 $2,948,000,000
Cash debt coverage ratio Cash provided by operations $1,676,000,000 = 0.31 $592,000,000
Average total liabilities $5,384,500,000 $7,692,500,000
Price/Earnings ratio Market price as of 1/31/2011 $50.78 = 13.84 $32.07
EPS $3.67 $1.44
Cash provided by operations minus capital
expenditures minus cash dividends paid
$915,000,000 $915,000,000
Interpretation and Comparison between the two
companies' ratios (Reading the Appendix of
Chapter 13 will help you)
$1.64
Comparing these numbers is not meaningful since
the number of shares outstanding differs.
= 2.41
JC Penney has $2.41 in current assets for every $1
dollar in current liabilities while Kohl's has only $2.08.
JC Penney is more liquid based on the current ratio.
= 39.19%
JC Penney's gross profit ratio is better than Kohl's
gross profit ratio by almost 1% (39.19% - 38.24%)
0.95
J.C. Penney Corporation
= 2.19%
Kohl's is more profitable based on the profit margin
ratio because it earns 6 cents for every $1.00 in
sales as compared to 2 cents earning per $1.00 of
JC Penney.
3.5
Kohl's inventory turnover is slightly better by .3 than
JC Penney. This might indicate that Kohl's volume of
sales in terms of inventory is better than JC Penney.
times
= 105
The result of the days' in inventory is consistent with
the inventory turnover. The result is in favor of
Kohl's. Kohl's has the ability to sell its inventory 9
days (105-96) ahead compared to JC Penney.
days
= Not Applicable
Not applicable - there is no accounts receivable on
the annual report of both companies.
= Not Applicable
Not applicable - there is no accounts receivable on
the annual report of both companies.
= 1.39
The result of this particular ratio is almost identical;
JC Penney is irrelevantly better than Kohl's.
= 3%
Kohl's efficiency in the usage of its resources is
reflected on the return on assets ratio as it earns 8
cents for every dollar of assets as compared to JC
Penney's 3 cents earning for every dollar of assets.
Therefore, Kohl's is more profitable based on this
ratio.
= 58.14%
Kohl's require to liquidate 40.27% of its assets at
their book value to satisfy their obligations while JC
Penney must liquidate 58.14% of its assets at their
book value to satisfy their obligations. This ratio tells
us that the stockholder's interest is larger at Kohl's
compared to JC Penney.
= 3.6
Kohl's ability to pay its obligation is in a better
position compared to JC Penney based on this ratio.
Kohl's times-interest earned ratio is significantly
higher than JC Penney.
= 48.59%
Not Applicable - Kohl's did not declare and pay
dividend on 2010.
= 8%
Kolh's earning for every dollar invested by common
stockholders is better by 6 cents as compared to JC
Penney so Kohl's is more profitable based on this
ratio.
= ($96,000,000)
Kohl's has $915M in free cash flow while JC Penney
has -$96M based on the provided solution but $158M
if based on the computation provided by the annual
report. Regardless, Kohl's has the advantage on this
particular ratio.
= $158,000,000
= 0.20
Kohl's 66 cents in cash provided by operation in
relation to average current liabilities is better than JC
Penney's 20 cents so Kohl's is more liquid based on
this liquidity ratio.
= 0.08
Kolh's 31 cents in cash provided by operating
activities for every dollar in average total liabilities is
stronger that JC Penney's 8 cents for every dollar of
average total liabilities. Therefore, Kohl's is more
solvent as compared to JC Penney based on this
ratio.
= 22.27
JC Penney is more marketable and the public is
more optimistic based on the price earnings ratio.
Liquidity: Based on the result of the liquidity ratios like free cash flow and cash debt coverage Kohl's has
better liquidity. Kohl's $915M free cash flow is significantly more than JC Penney's $158M free cash flow
so this a solid basis of Kohl's advantage in liquidity as compared to JC Penney. The result of current cash
debt coverage ratio is also siginificantly in favor of Kohl's compared to JC Penney. However, JC Penney's
current assets in relation to current liabilities is more by 33 cents as compared to Kohls.
Solvency: The results of the debt to the total assets ratio and the times interest earned ratio are both in
favor of Kohl's. These two ratios project a significant margin in favor of Kohl's; 40.27% vs 58.14% 13.6 vs
3.6 for debt to the total assets ratio and the times interest earned ratio respectively. The free cash flow and
the cash debt coverage ratio are both good measurements as well because both results significantly favor
Kohl's with $915M free cash flow as compared to JC Penney's $158M and 23 cents advantage in cash
provided by operating activities for every dollar in average total liabilities. Therefore, Kohl's state of
solvency is better than JC Penney.
Profitability: The profit margin ratio, return on assets and return on common stockholder's equity are all in
favor of Kohl's. Kolh's profit margin ratio of 6.06% is significantly higher than JC Penney's 2.19% and the
difference of 5 cents in the return on assets ratio by Kohl's over JC Penney is also significant. Kohl's
earnings for every dollar invested by common stockholders is better by 6 cents as compared to JC
Penney. Overall, Kohl's is more profitable than JC Penney. JC Penney's gross profit ratio is slightly
higher than Kohl but this is not sufficient measurement compared to various ratios that are in favor of
Kohl's.
Conclusion: Kohl's is more liquid and solvent compared to JC Penney based on the analysis and I can also
safely conclude that Kohl's profitability is stronger than JC Penney because majority of the profitability
ratios are in favor of Kohl's. The price earnings ratio might indicate that JC Penney is more marketable
and that the public is more optimistic about the future of JC Penney but this ratio is lacking in many
elements compared to the ratios that are in favor of Kohl's. Overall, the financial standing of Kohl's is
better than JC Penney based on my evaluation of these two companies. If I were to invest, I would have to
go with Kohl's at this point in time based on thie financial evaluation.
The Appendixes of your textbook and any information you use to profile the companies should be cited as a reference below.
http://finance.yahoo.com/q/pr?s=JCP+Profile
http://www.jcpenney.com
http://finance.yahoo.com/q/pr?s=KSS+Profile
http://www.kohlscorporation.com/PressRoom/PressRoom02C.htm
http://bigcharts.marketwatch.com/historical/default.asp?symb=kss&closeDate=01%2F31%2F2011&x=27&y=18
http://bigcharts.marketwatch.com/historical/default.asp?symb=jcp&closeDate=1%2F31%2F11&x=37&y=19
The Appendixes of your textbook and any information you use to profile the companies should be cited as a reference below.