Table of Contents
2. Return on Investment ROI
b. Net Income
c. Cost of Goods Sold
e. Average Total Assets
i. Inventory Turnover
3. Cash Flow Analysis
b. Stock Repurchase
4. Statement of Shareholder’s Equity
a. Debt to Equity
b. Current Ratio
c. Competitor Analysis
5. Income Projection
The decision to buy, sell or hold Kohl’s stock is a difficult one. Their 2012 financial statements reflect a descending trend in cash, which may be a positive indication of the company reinvesting funds back into the company and distributing dividends to shareholders. However, their financial statements also reflect an increase in total liabilities, which may be a negative indication of more leverage being used to finance the company. The more leverage the company has the greater the financial risk. In the final analysis, investors should buy Kohl’s stock. Kohl’s stock is affordably priced and the company has extraordinary growth potential. Outlined below are the factors that were taken into consideration before deciding if this was a financially healthy company to invest in. DuPont return on investment (ROI) can simply be defined as: “A primary measure of a firm’s profitability.” (Berman, 2006) DuPont ROI is an “expansion of the basic ROI calculation that factors in profitability from sales and the utilization of assets to generate revenue.” (Marshall,2011) Calculations of Kohl’s ROI revealed that the firm gained an 8% profit for every one dollar invested and slightly reduced to 7% in 2012. This illustration of ROI is demonstrated in exhibit 1.1. The gradual decrease in the DuPont ROI is primarily driven by the shifts in net income and average total assets.Net income for Kohl’s slightly dwindled from 2011-2012. This calculation of net income is illustrated in exhibit 4.1. As the cost of goods sold and expenses increased net income reduced. The contributing factors directly related to these factors will be further explained. After the United States emerged from a recession, sales increased 2% from 2010-2011 to $18 billion dollars. The incline was attributed to the growth of Kohl’s online E-Commerce shopping site. The site experienced $ 1 billion in revenue, a $269 million increase from 2010. The Huffington Post reported shoppers spent an estimated “$1 billion dollars in the week following Thanksgiving”, breaking previous online shopping sales. (Barr, 2012)Kohl’s E-commerce shopping sales increased because of the optional size availability and merchandise selection not offered in the retail store. The sales of their “private and exclusive brands” consisted of 50% of net sales. These items have higher margins; therefore the company makes a greater profit on them. Increased spending on marketing and advertisement contributed to the increase in sales. Moreover, in 2012 revenue numbers reflected continued growth that was cultivated by strong E-commerce sales. Despite strong E-commerce sales retail stores produced less than stellar results. The sluggish retail store sales were brought forth by the slow holiday shopping season in 2012. Shoppers were cautious on spending during the holiday season, as the government’s “fiscal cliff” raised concern. (Barr, 2012). Retail locations in the Northeast and Mid-Atlantic region suffered a loss due to hurricane Sandy that caused destruction to the area. Finally, throughout the United States warmer climates caused the retailer to experience a decline in the sales of seasonal apparel, due to increased temperatures. In addition, as mentioned above the COGS also affected the firm’s net income. The COGS began to steadily trend up from 2010-2012. This calculation of COGS is illustrated in exhibit 4.1. During the first six months of 2012, the company experienced a hike in apparel cost from manufactures. The hike in apparel cost was contributed to higher cotton prices. In June 2012, the price of cotton increased as “demand...
References: Barr, A. (2012, November 25th). Huffington Post. Black Friday Online Sales Exceed $1 Billion For The First Time, p. 2.
Berman, K. (2006). Financial Intelligence. Boston: Harvard Business School Publishing.
Laya, P. (2012, September 21st). Bloomberg. Retrieved October 1, 2013, from http://www.bloomberg.com/news/2012-09-21/cotton-prices-may-fall-11-by-november-on-surplus-plexus-says.html
Marshall, M. (2011). Acoounting:What The Numbers Mean 9th ed. New York: Mcgraw Hill .
Rupp, L. (2013, October 2). Bloomberg. U.S Holiday Retail Sales May Climb by 3.9% NRF Says, p. 2.
U.S. Energy Informantion Administration. (2012). Retrieved 1October 1, 2013, from http://www.eia.gov/
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