Essay Sample on Macy's Financial Performance: Horizontal & Vertical Analysis

Introduction

Macy's is an American company that focuses on the production latest clothing brands for women as well as men. Also, the company focuses on the production of baby shoes, accessories, beauty products, shoes as well as pieces of jewelry. Over the years, Macy's has succeeded in its operation, and this is evident using its financial data. The financial data of this company can be explained by using different financial ratios.

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Horizontal and Vertical Analysis

Looking at the horizontal as well as the vertical analysis of Macy's, the company has been struggling for the past three years. This information is evident from the income statement of the company, which shows reduced profits. However, there is a positive outlook for the future whereby the financial status of the company is likely to pick up because the company has taken measures to restructure its activities. Furthermore, there is a demand in different clothing brands in the US hence there is chance that the profit of the company will go up.

Profitability Ratios

The first set of ration that explains information about the company is the profitability ratio which is used to show the profit that UA has made over a specific period (Kanapickiene, & Grundiene, 2015). From the profitability ration of Macy's, it is evident that in future the profit that the company will be making will go high since it has expanded its business to international markets, cutting costs and focusing on several investments. One of the specific trends in the data item is the ROA, EWI, PM, and ROE were negative which means that the company was not making profits from its efforts (Morales-Diaz & Zamora-Ramirez, 2018).

Asset Utilization and Efficiency Ratios

The asset utilization, as well as efficiency ratios, is the second set of rations that explain financial information of Macy's. The purpose of this ratio shows whether the company is productive as well as efficient while using its assets (Kanapickiene & Grundiene, 2015). In the case of Macy's, Asset Utilization and Efficiency Ratios have been going down over the past few years. However, the future projection of this ratio is that it is going to increase since the company is currently restructuring its expenses of $300 million hoping that it will bear fruits in 2019(Kanapickiene & Grundiene, 2015). The trend that is important in this case is that an increase in the asset utilization, as well as efficiency ratios, shows that that the company is using its assets productively as well as effectively.

Liquidity, Capital Structure, and Solvency Ratios

The liquidity, capital structure, and solvency ratios help to show that a company has a positive working capital hence there should not be an issue that will prevent it from attaining its obligations (Morales-Diaz & Zamora-Ramirez, 2018). The current ratio for Macy's is above 1. This figure is an indication that the company has a positive working capital. There is a likely hood that this ration will be maintained at above 1 because the cash flow that the company is experiencing from various activities has increased (Morales-Diaz & Zamora-Ramirez, 2018). The important trend, in this case, is the increase in the cash flow because it will ensure that the liquidity, capital structure as well as the solvency ratios are maintained at 1(Arkan, 2016).

Investor Ratios

Investor ratios is important in this case since it helps to show the ability that a business has to help the owner earn a return from their investment (Arkan, 2016). In the case of Macy's, the current investor ratio is low because the performance of the company has reduced over the past few years. The reduction in the performance means that the business owners will have a reduced return from their investment. However, there is a likelihood that the investor ratio will increase in the coming years since the company has restructured the activities that will help it to increase the money in the company. The data item that is used in this case is the book-to-market ratio. The book-to-market ratio trend shows that it gradually increases; hence, there is a high chance that it will achieve a more excellent value.

Comparing the Ratios

Nordstrom Inc. is a collection of American luxury stores that operates in various places which deal with the production of shoes, and clothing as well as accessories. These products are for men, women as well as kids. This company has been successful in its activities, thus providing stiff competition to Macy's. This competition can be identified using the financial ration that each of the company has.

Vertical and Horizontal Analysis

There is a big difference between Macy's Inc. and Nordstrom when looking at the vertical as well as the horizontal analysis as well as some similar elements. The main similarity is about the structures such as the reducing net income in the past two years; gross profit as well as the cost of sales. However, Nordstrom is doing well compared to Macy's in various categories. For instance, Nordstrom has been making more money than Macy in the past three years. The comparison of these ratios is as follows;

Profitability Ratio

In terms of profitability ratio, which shows the profit that the company has achieved over a certain period, it is evident that Nordstrom is ahead of Macy's. Nordstrom has been making a lot of profit while Macy's has been experiencing reduced earnings in the past two years. One of the reasons that have made Nordstrom surpass Macy's is the US factors as well as the performance in the market. Many sporting goods, as well as footwear chains in the US, have experienced bankruptcy, and this has affected both companies. Furthermore, the shifting demands of the customers have changed the sales, and hence the profit earned by these two companies. However, Nordstrom has managed to stay ahead of Macy's because most of its sales come from the international market where there are few challenges. The other reason that has made the profitability of Nordstrom to be ahead that of Macy's is that Macy's has been focusing on restructuring its activities. This process takes a lot of funds thus affecting the numbers of the company negatively.

Asset Utilization and Efficiency Ratios

In terms of asset utilization and efficiency ratios, both Nordstrom and Macy's have common aspects. However, Nordstrom still has an advantage over Macy's. Over the past years, Macy's has spent a lot of Money Company to Nordstrom simply because it has been restructuring its process. Nordstrom, being a large company does not have to spend a lot of money on marketing since they have a strong brand and are recognized in the market. Furthermore, Nordstrom has managed to build a relationship by forming a partnership with other firms hence it has been able to manage its assets effectively and efficiently. On the contrary, Macy's is a smaller firm compared to Nordstrom thus; there are various barriers that it faces such as low sales. Therefore, the company is forced to spend more so that it can stand out among the large companies. Also, Nordstrom has a lot of money which has contributed to its large economy of scale as well as more leverage compared to Macy's.

Liquidity, Capital structure, and Solvency Ratios

Comparing the two companies, Nordstrom has emerged more solvent compared to Macy's. For example, the ratio of Nordstrom in 2018 was 2.51, while that of Macy's was 1.97(Arkan, 2016). It is clear that from the ratio, Macy's has been on a decline while Nordstrom has been gradually rising. However, both companies are experiencing a steady increase in the debt-to-equity ratios.

Investor Ratio

Comparing the P/E ratios of Nordstrom and that of Macy's, it is evident that investors are confident with Nordstrom in terms of the future returns. In the last two years, there has not been the reporting of P/E ratios of Macy's because the company has been experiencing negative earnings. Compared to Nordstrom, the P/E ratios were higher, which stood at 20.76 in 2017 and 61.93 in 2018(Kanapickiene & Grundiene, 2015). Looking at the difference in this ratio, Nordstrom is a safer investment compared to Macy's.

References

Arkan, T. (2016). Importance of financial ratios in predicting stock price trends: Casestudy in emerging markets. Finance, Rynki Finansowe, Ubezpieczenia, 79(1), 13-26.Retrieved from: https://www.ceeol.com/search/article-detail?id=623339

Kanapickiene, R., & Grundiene, Z. (2015). The model of fraud detection in financial statementsutilizing financial ratios. Procedia-Social and Behavioral Sciences, 213, 321-327.Retrieved from: https://www.sciencedirect.com/science/article/pii/S1877042815059005

Morales-Diaz, J., & Zamora-Ramirez, C. (2018). The impact of IFRS 16 on key financial ratios:a new methodological approach. Accounting in Europe, 15(1), 105-133. Retrieved from:https://www.tandfonline.com/doi/abs/10.1080/17449480.2018.1433307