Financial Ratios Essay Sample

James Cash Penney opened his first shop located in Kemmerer Wyoming in 1902. at the age of 25. The first shop was opened in partnership between Penney. T. M Callahan and Guy Johnson as a ‘cash only’ shop. declining to take excavation book or widen recognition. Investing his full nest eggs of $ 500. Penney had to borrow $ 1. 500 and was cautioned against his ‘cash only’ policy. as other shops in excavation towns had been neglecting. The shop was a success in malice of bankers warnings gaining $ 28. 898 in gross revenues. Within two old ages Penney bought out Callahan and Johnson. and Penney had taken over their three other shops. Expanding quickly. by 1915 there were 83 shops and by 1917 there were 175. Presently there are over 1. 200 with over 205. 000 employees shops runing from the all 50 provinces every bit good as Puerto Rico. Mexico and Chile. the company is presently headquartered in Plano Texas. J. C. Penney sells ; vesture and places for work forces. adult females and kids ; kitchen goods and family contraptions ; bathroom and sleeping room linens ; jewlery and other accoutrements. they are known widely for their catalog services ; and in 2010 they introduced the Sephora. a decorative company transporting many major trade name names inside their shops.

Kohl’s direction purchased 40 shops in Wisconsin and Indiana from the establishing company of BATUS ( British-American Tobacco Co. ) in 1986 and became known as ‘one of the largest price reduction section shop ironss in the United States’ ( Kohl’s Corporation History ) . Spending three old ages developing their Kohl’s construct of reasonably priced dress for middle-income households. Kohl’s began spread outing from the mid-west in 1988. With over 33. 000 employees Kohl’s is based out of Menomonee Falls. Wisconsin and operates 1. 146 shops countrywide. Kohl’s sells jewellery. vesture accoutrements. cosmetics. places. little kitchen contraptions and cooking utensil. sleeping room and bathroom linens. every bit good as vesture for work forces. adult females. and kids. These points include nationally recognized names. and more late lines designed for Kohl’s by good known interior decorators such as Vera Wang.

( $ in 1000000s. except per portion informations ) JC Penney IncKohls CorpInterpretation and comparison Net incomes per shareAs given on the income statement= $ 1. 60= $ 3. 67Comparing these Numberss is non meaningful since the figure of oustanding portions differs.

Current ratio: Current assts $ 6. 370=2. 415. 645=2. 08J. C. Penney has $ 2. 41 in current assets for every $ 1in current liabilities. Where Kohl’s has merely $ 2. 08. Based on this J. C. Penney is more liquid.

Current liabilities $ 2. 6472. 710

Gross net income ratio: Gross net income ( net sales- cost of goods sold ) 6. 960=39. 19 % 7. 032=38. 24 % J. C. Penney’s gross net income ratio is better than Kohl’s about 1 % ( 39. 19 % -38. 24 % =0. 95 % )
Net sales17. 75918. 391

Net income border ratio: Net income389=2. 19 % 1. 114=6. 06 % Kohl’s is more profitable when comparing net income border ratio. They earn 6 cents for every $ 1 in gross revenues compared to the 2 cents J. C. Penney earns.

Net sales17. 75918. 391

Inventory Employee turnover: Cost of goods sold10. 799=3. 3611. 359=3. 74Kohl’s stock list turnover ratio is better by 0. 38 ( 3. 74-3. 36=0. 38 ) over J. C. Penney. Possibly declarative that Kohl’s volume of gross revenues in footings of stock list is better than J. C. Penney

Average inventory3. 2133. 036

Dayss in inventory:365 days365=108. 60365=97. 56The consequences in line with the stock list turnover ratio favour Kohl’s. Kohl’s sells their stock list 11 yearss faster than J. C. Penney ( 108-97. 56 )

Inventory turnover3. 363. 74

Receivable turnover ratio: Net recognition sales0=00=0Not applicable. No histories recievable or recognition gross revenues listed on the one-year study of either company.
Average net receivables00

Average aggregation period:365 days365=0365=0Not applicable. No histories recievable or recognition gross revenues listed on the one-year study of either company.
Receivable turnover ratio00

Assetss turnover ratio: Net sales17. 759=1. 3918. 391=1. 38There is a fringy difference between J. C. Penney and Kohl’s of 0. 01 ( 1. 39-1. 38 ) in favour of J. C. Penney
Average entire assets12. 81213. 362

Tax return on assets ratio: Net income389=2. 98 % 1. 114=8. 21 % Kohl’s reflected a return on assets ratio gaining $ 0. 08 for every $ 1 of assets. Relatively J. C Penney earns non rather $ 0. 03 for every $ 1 of assets.

Average entire assets13. 04213. 564

Debt to entire assets ratio: Entire liabilities7. 582=58. 14 % 5. 462=40. 27 % J. C. Penney must neutralize 58. 14 % of their assets to fulfill their outstanding liabilities. Kohl’s. nevertheless merely would hold to sell off 40. 27 % of their assets to fulfill their liabilities.

Entire assets13. 04213. 564

Timess involvement earned ratio: Net income+Interest disbursal + Tax expense389+231+203=3. 561. 114+132+668=14. 5Kohl’s ratio is significantly higher at 14. 5 signaling their ability to pay fiscal duties.

Interest Expense231132

Payout ratio: Cash dividend declared on common stock189=48. 59 % 0=0. 00 % Not applicable as a comarison. as Kohl’s did non pay dividends in 2010.
Net income3891. 114

Tax return on common stockholders’ equity: Net income-Preferred stock dividend389-189=3. 66 % 1. 114=13. 75 %
Average common stockholders’ equity5. 4608. 102

Free hard currency flow: Cash provided by operations – capital expenditures-cash dividends paid592-499-189=- $ 196. 001676-761= $ 915. 00J. C Penney has a – $ 196M hard currency flow calculated upon the provided expression. nevertheless based on their one-year study accounting for pension part and discretional hard currency pension part and returns from gross revenues J. C. Penney reported $ 158M in financess. Either figure is still far below Kohl’s $ 915M.

Current hard currency debt coverage ratio: Cash provided by operations592=0. 221. 676=0. 62Kohl’s $ 0. 62 in hard currency provided by operation divided by mean liabilites is stronger than J. C. Penney’s $ 0. 22 for every dollar of liabilities

Average current liabilities2. 6472. 710

Cash debt coverage ratio: Cash provided by operations592=0. 081. 676=0. 31Kohl’s $ 0. 31 in hard currency provided by operating activities for every dollar in mean entire liabilities is stronger than that of J. C. Penney’s $ 0. 08.

Average entire liabilities7. 5825. 462

Price/Earnings ratio: Market monetary value as of 01/29/201132. 29=20. 1851. 20=13. 95J. C. Penney leads the monetary value net incomes ratio at 20. 18 over Kohl’s 13. 95
EPS as of 01/29/20111. 63. 67

Liquid:
Kohl’s has better liquidness based upon ratios like free hard currency flow and hard currency debt coverage. Their free hard currency flow sum of $ 915 Million. is
unambiguously preferred to J. C. Penney’s $ 158M. The consequence of current hard currency debt coverage ratio of Kohl’s over J. C. Penney. However. J. C. Penney’s current assets in relation to current liabilities is current liability ratio of $ 2. 41 is much stronger than Kohl’s $ 2. 08. $ 0. 33 is a important index when speech production in 1000000s.

Solvency:
Kohl’s besides fares better based upon the consequences of the debt to entire assets ration and the times involvement earned ratio. These two ratios project a great border over those of J. C. Penney. The free hard currency flow and the hard currency to debt coverage ratio are both good measurings every bit good because both consequences favor Kohl’s. Signing that Kohl’s has non merely the hard currency on manus to cover debts. but besides the handiness to pay the debts.

Profitableness:
The net income border ratio. return on assets and return on common stockholders’ equity thin towards urging Kohl’s profitableness over J. C. Penney. Kohl’s net income border ratio at 6. 06 % over Penney’s 2. 19 % . The $ 0. 05 difference of the return on plus ratio is immense when comparing the sum of assets is in the 1000000s. Kohl’s net incomes for every dollar invested by common shareholders at 13. 75 % . Overall. Kohl’s is more profitable than Penney’s. particularly since the 2010 one-year study references that dividend dispursement will get down in 2011. J. C. Penney’s gross net income ratio is somewhat higher than Kohl’s but is non sufficient measuring compared to the above mentioned ratios.

Decision:
Based upon the makings of liquidness. solvency and profitableness. all factors lead investors to see that Kohl’s is clearly a stronger company to put their money. The monetary value net incomes ratio may propose that J. C Penney may be declarative that Penney’s is more marketable and that the populace is more optimistic in Penney’s hereafter. but compared to the stronger Numberss Kohl’s puts Forth on many ratios. Penney’s is unable to truly vie. Overall. the fiscal standing of Kohl’s becomes the obvious pick for investing intents. I would take to put my money with Kohl’s at the point in clip of the fiscal ratings. I would greatly expect the first dividends from Kohl’s in the 2011 one-year study.