Institution Kohl's Financial Statement and Analysis Paper Example

Introduction

Kohl's Corporation is a retail chain of department stores in the United States which is headquartered in Milwaukee in Wisconsin. The company operates more than 1,100 stores within 49 states (CSI Market, 2018). As of 2013, the store was considered to be the 20th largest store in the United States when evaluated based on sales (CSI Market, 2018). The company is publicly listed and has had different performance over the years.

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Stock Trends

There have been apparent trends in the company's stock trends over the past years. For instance, after April 2015 the company's share price begun declining until July 2017 where it experienced a raise. The raise was recorded to the figure $64.77 in January 2018 (CSI Market, 2018). The decline in the number of its stocks was attributed to the growth of the company's e-commerce segment, declining mall traffic, and intense competition from Amazon, which entered the apparel market (Fraser, Ormiston, & Fraser, 2010).

Evaluation Based on a Horizontal and Vertical Analysis of the Income Statement

There were a decline and a corresponding increase in the revenues in the years that came before 2016 and 2017. The financial statement reports that in 2016 revenues decreased by 2.70% while in 2017 they increased by 2.19% (CSI Market, 2018).

The cost of goods sold in 2017 increased by 1.94%. The figure was in contrast to the preceding year (2016) when the cost of goods sold was decreased by 2.62%. The statistics reveal a marginally differentiated trend in the changes in revenues that have occurred over the years. From another perspective, the proportion of the cost of goods sold to the percentage of revenues remained primarily similar to 63% for the years 2015, 2016, and 2017.

The company's gross margin reported a decrease in the year 2016. The decreased was recorded at 2.84%. However, in 2017, the company's gross margin increased by 2.63%. A similar trend in the company's net margin was also manifested. In 2016, the net margin decreased by 17.38% while in 2017 it increased by 54.50% (CSI Market, 2018).

Also, the company's financial statements reveal that operating expenses increased in 2016 by 3.21% but later decreased by 1.01% in 2017. In the company, there was a consistency in the trend that operating expenses increase while revenues decline. In the year 2015, the ratio of operating expense to revenues was recorded at 28.05%. In 2016, the ration increased to 29.75%, and it later declined to 28.82% in 2017.

The company's operating income shows a trend that was consistent with that of its revenues. There was an increase of 19.70% in revenues in 2017 which occurred after a decline in revenues of 23.82% in 2016. From the years of 2015 to 2017, the ratio of operating income to revenues was reported as 8.09%, -6.33% and 7.42% consecutively.

The financial statement indicated that the company's interest expense was declining. Also, the report suggested that the company had a loss on its extinguishment of debt which totaled to $169 million. It was also observable that changes in net income are not consistent with the changes in revenues and expenses (CSI Market, 2018).

Company Balance Sheet

The company's balance sheet reported that there was a decline in its value of assets by 1.72% in 2017 (CSI Market, 2018). The decline was attributed to decreasing costs in the company's plants, equipment as well as property. While assets reduced, liabilities also declined in 2017 by 5.75%, an occurrence which was credited to the reduction of the year's current responsibilities. Contrastingly, the company's shareholder equity increased by 4.81% in 2017. The business credited the increase to the growth of retained earnings and the issuance of new shares. Perhaps the greatest noticeable change in the company's balance sheets was a cash increase of $234 million. While the business' money increased, the value of its net property plant, equipment, inventory as well as accounts payable declined in value by costs of $253 million, $330 million and $236 million respectively (CSI Market, 2018). The event may have been caused by an increase in cash sales, which correspondingly reduces inventory and accounts payable.

The balance sheet also provided significant observations. For instance, there was a growth in amortization and depreciation as reported in 2017. The increase was also inclusive of a $22 million dismissal of projects in the field of information technology. The cancellation was justified by the fact that the plans were no longer in line with the company's cloud mitigation goals. The growth was also a result of the launching of an e-commerce center as well as other investments.

The company did not experience any need for foreign exchange translation adjustments neither did it have any unrealized gains or losses in its securities. The company did not also have any realized gains or losses on pensions and obligations. There were also no other significant obligations from the review of the statement of income.

Company Stock

The business common stock experienced significant changes during the 2017 financial year. The changes encompassed issuing a total of 2 million new ordinary shares to employees. The shares were issued a stock options and awards. Despite issuing 2 million shares, the company repurchased its stock. Its intent to repurchase its stock was motivated by the need to convert flat revenue to yearly earnings. It, therefore, brought back 8 million of the shares at $306 million. Owing to the repurchase of its shares, the company's number of outstanding shares changed. There was, therefore, a decrease in the shares outstanding due to the repurchase of 8 million shares. The statement of shareholder equity also exhibited a significant change. For instance, there was a growth of retained earnings, which was credited to an increase in net income of $859 million during the 2017 financial year. However, the retained earnings were later decreased to $484 million after dividends were paid to shareholders (CSI Market, 2018).

In the same financial year, the company's net cash derived from operating income totalled to $1.7 billion after a decline of $0.46 billion. The reduction was attributable to changes made in account payable. The net cash utilized in investment activities was reduced by $107 million. The occurrence was credited to the implementation and execution of corporate improvements, functionalization of new stores and launching of the beauty rollout. The company's cash flows reduced by $222 million in the year 2017 an occurrence, which was credited to a decline in the value of the company's treasury stock by $251 million.

The company obtained most of its capital resources from the sale of its inventory. Conversely, the most significant use of its capital resources was the purchase of assets such as property and equipment. It also used the cash to purchase stock and pay for dividends. The company's value in depreciation and amortization accounted for the differences that arose from the net income and cash flows. It could be observed that the company's cash levels increased by $256 million in 2016 but decreased by $236 million in 2017 (CSI Market, 2018).

Financial Ratios

Liquidity ratios provide measures of a company's ability to meet its debt obligations. They can, therefore, be used to evaluate the financial health of a company (Saleem & Rehman, 2011). The table below shows the three-year financial health of the company.

Table 1

Kohl's the three-year financial health ratios

Source: Fraser, Ormiston, & Fraser, 2010.

Profitability ratios denote how well the company's management is using its resources to generate a profit. They also indicate how well the company can reduce its expenses will increase profits (Weil, Schipper, & Francis, 2013). The table below shows profitability ratios of the company.

Table 2

Kohl's profitability ratios

Source: Fraser, Ormiston, & Fraser, 2010

Efficiency ratios denote how well a company is using its resources to generate a return for the business (Fraser, Ormiston, & Fraser, 2010). The rates are used to make a comparison of how the market is performing relative to other companies in the industry. The table below shows the company's efficiency ratios.

Table 3

Kohl's efficiency ratios

Source: Fraser, Ormiston, & Fraser, 2010

Solvency ratios provide a measure of whether creditors to give the company a loan for a long-term basis. The ratios can, therefore, be used as a determinant of whether the company can take up more debts (Gibson, 2011).

Table 4

Kohl's solvency ratios

Source: Fraser, Ormiston, & Fraser, 2010.

Accounting Procedures

During the preparation of the company's financial statements, accounting principles that are accepted in the United States were confirmed. The company's management had undertaken a discussion on the development, selection, and disclosure of estimates that would affect amounts that were reported. In the statements, depreciation was calculated using the straight-line approach which also used estimated useful life of the assets. Amortization on a straight line basis was used to account for properties on lease. The valuation of the inventory was done using retail inventory method.

The company has also set up contingencies for its operations. It occasionally makes assessments on the probability that adverse events may impact it. It, therefore, makes evaluations based on a case-by-case basis. Accruals are then established based on the potential of exposure. As of February 2018, the company's long-term debt is $18 million. The company's rent expense has been on the increase since 2015. In 2015, rent expenses were $279 million, $276 million in 2016 and $293 million in 2017. Apart from rent expense, the company also paid for real estate taxes, insurance on the rented premises as well as maintenance cost. It is observable that the company had a contribution savings plan for its full-time and temporary employees.

Based on accounting principles, the financial report was required to conform to any of the following types of opinions. First is the unqualified opinion which is a type of report that is provided when it is believed that the company does not have any material misinterpretation in its statements. Second is the qualified opinion, which is provided when the financial records are not provided based on accepted accounting principles. Thirdly is an adverse opinion which is issued when there is a misinterpretation in financial reporting. Lastly is the disclaimer of opinion which is issued when an auditor is unable to issue a report on audited financial statements.

The company was audited by Ernst & Young LLP, which provided it with an unqualified opinion, audited the company. Compared to its competitors, Kohl's has a revenue increase in its fourth quarter which stood at 9.2%. Its sales surpassed that of its competitor and recorded average revenue growth of 5.7% during the fourth quarter. The company also recorded higher profitability than its competitors at a...