Compare And Contrast Macy's And Nordstrom
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.