Compare And Contrast Macy's And Nordstrom

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Register to read the introduction… The more solvent a company is the more protected the owners and partners are from bankruptcy. Table 7 is the debt to equity ratios; debt service coverage ratios and cash flow from operations to capital expenditure ratios for both Macy’s and Nordstrom from 2009 to 2011. Macy’s debt to equity ratio was under 1 for FY 2009 and 2010, which suggested for these two years Macy’s assets are primarily financed through equity. This ratio was 1.06 in 2011. When the debt to equity ratio was over 1, implied the majority of assets are financed through debt, which was a red flag for Macy’s. Compared to Macy’s, Nordstrom had a much higher debt to equity ratio which was above 2 for all three years. A high ratio of 2 or more exposes a company to risk such as interest rate increases and causing creditors' uneasiness. Macy’s management is more effective custodians of their shareholder's investments than …show more content…
It tells where a company's strength lies and where there is a room for improvement. DuPont analysis tells us that ROE is affected by three things: Operating efficiency, which is measured by profit margin; Asset use efficiency, which is measured by total asset turnover; and Financial leverage, which is measured by the equity multiplier. So the formula will be:
ROE = (Net Income/Revenue)*(Revenue/Assets)*(Assets/Equity)
Table 9 is the DuPont analysis for both Macy’s and Nordstrom from 2009 to 2011. Looking at the components of ROE for both companies helps explain the changes in ROE over time. Since Nordstrom had higher profit margin ratio, asset turnover rate and leverage factors, its overall ROE was much higher than Macy’s in the three year trend. It shows Nordstrom is more effective at generating profits, managing assets and finding an optimal amount of leverage, this is why it can boost its ROE.
Although Macy’s ROE were lower than Nordstrom’s, its own ROE still kept on growing over years, from 7.05% in 2009 to 15.05% and 21.25% in 2010 and 2011 respectively. It is result of improving its operating efficiency and asset use efficiency, which suggests Macy’s management kept on improving its performance and the company developed in a healthy and growing direction.


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