Sears V.S Walmart
1. What ratios are MOST important in assessing current and predicting future value creation for Sears? For Wal-Mart?
Sears
Sears grew up to the world’s largest retailer by expanding annual sales through diversifying sale products, such as apparel, cosmetics, jewelry, electronics, household appliances, cookware, bedding and hand-tools. This article shows that Sears suffered from a cost increase in 1997, including lawsuits, credit collectibles and sales in Mexico. Besides, the flexible payment facility that Sears offered is also a reason for cost increase. These problems brought Sears with bad debt and hence decreased the cash flow. The problems of the company came from the liquid market security, so I emphasize the flowing concepts: 1. Profit Margin, ( Net Income / Total Revenue)
“It measures how much out of every dollar of sales a company actually keeps in earning.”
This concept is effective to compare similar companies in an industry; a higher profit margin indicates a better leading position in the industry. It is an indicative factor for Sears to forecast its position in this industry
2. Asset Turnover rate ( Revenue/ Asset)
This ratio can measure how efficient Sears uses its asset to chase for revenue.
3. DEBT to Equity Ratio ( Total liability/ equity)
(5.6 in 1997, 6.3 in 1996)
The ratio of debt to equity measures the risk of the corporation’s creditors and its prospective creditors
4. ROA (Net Income/Total Asset),
Since the company has a higher sales in 1997 than the past 2 years but lower net income. To evaluate the performance of the company, we must know how profitable Sears is relative to its total assets.
5. ROE (Profit Margin * Assets Turnover * Leverage Ratio) which is more accurate way to evaluate the performance of Sears in the retailer industry.
6. Days of receivable
Since Sears have a big issue about the credit collection, we need to think about the days of receivable. 7. Liquidate ratio *
Sears
Sears grew up to the world’s largest retailer by expanding annual sales through diversifying sale products, such as apparel, cosmetics, jewelry, electronics, household appliances, cookware, bedding and hand-tools. This article shows that Sears suffered from a cost increase in 1997, including lawsuits, credit collectibles and sales in Mexico. Besides, the flexible payment facility that Sears offered is also a reason for cost increase. These problems brought Sears with bad debt and hence decreased the cash flow. The problems of the company came from the liquid market security, so I emphasize the flowing concepts: 1. Profit Margin, ( Net Income / Total Revenue)
“It measures how much out of every dollar of sales a company actually keeps in earning.”
This concept is effective to compare similar companies in an industry; a higher profit margin indicates a better leading position in the industry. It is an indicative factor for Sears to forecast its position in this industry
2. Asset Turnover rate ( Revenue/ Asset)
This ratio can measure how efficient Sears uses its asset to chase for revenue.
3. DEBT to Equity Ratio ( Total liability/ equity)
(5.6 in 1997, 6.3 in 1996)
The ratio of debt to equity measures the risk of the corporation’s creditors and its prospective creditors
4. ROA (Net Income/Total Asset),
Since the company has a higher sales in 1997 than the past 2 years but lower net income. To evaluate the performance of the company, we must know how profitable Sears is relative to its total assets.
5. ROE (Profit Margin * Assets Turnover * Leverage Ratio) which is more accurate way to evaluate the performance of Sears in the retailer industry.
6. Days of receivable
Since Sears have a big issue about the credit collection, we need to think about the days of receivable. 7. Liquidate ratio *