Question

success. It involves using the results of both industry and competitive analysis and com pany situation analysis to identify a "worry list" of issues to be resolved for the company to be financially and competitively successful in the years ahead. Actually deciding upon a strategy and what specific actions to take comes after the list of strategic issues and prob- lems that merit front-burner management attention has been developed. Good company situation analysis, like good industry and competitive analysis, is a valuable precondition for good strategy making ASSURANCE OF LEARNING EXERCISES Using the financial ratios provided in the Appendix and the following financial statement information for Macy's, Inc.,.calculate the following ratios for Macy's for both 2015 and 2016. 1. 1. Gross profit margin 2. Operating profit margin 3. Net profit margin 4. Times interest earned coverage 5. Return on shareholders' equity 6. Return on assets 7. Long.term debt-to-equity ratio 8. Days of inventory 9. Inventory turnover ratio 10. Average collection period Based on these ratios, did Macy's financial performance improve, weaken, or remain about the same from 2015 to 2016?

Answer 1

Answering Question 1 only

Defining the ratios and the values are presented in the table attached

Gross Profit Margin = Gross profit/ Sales

Operating Profit Margin = Operating Income/ Net Sales

Net Profit Margin = Net Income/ Net Sales

Times Interest Earned Coverage = Earnings before Interest and taxes / Interest payable on Bonds & Debts

                                                                i.e = Operating Income/ Interest expense

Return on Shareholder’s Equity = Net Income / Average Shareholders’ Equity

Return on assets = Net Income/ Total assets

Long term Debt to Equity ratio = Long term Debt / Total Shareholders’ Equity

Days of Inventory = (Average Inventory/ COGS) x 365 days

Inventory Turnover = Sales/ Inventory

Average Collection Period = (Accounts Receivables/ Net Sales) x 365 days

Ratios Gross Profit margin Operating Profit Margin Net Profit Margin 2015 39.1% 7.5% 4.0% Times Interest Earned Coverage3.585.62 Return on Shareholder's Equity | 14.1%| 25.2% 3.1%) 5.2% 1.65 126.15 121.83 4.774.92 7.52 2016 39.4%) 5.1% 2.4%) Return on assets Long term Debt to Equity ratio Days of Inventory Inventory Turnover ratio Average Collection Period 1.52 7.39

Quite evidently it can be seen, all the ratios have seen a decline in performance from 2015 to 2016. The Gross profit margin has remained more or less the same, however operating profit & Net Profit margins have seen a dip. From the investors' perspective, the Return on Equity has seen a sharp decline, this certainly doesn't augur well for the investors.

On the operational front too the performance has weakened, days of inventory has gone up and the Inventory turnover ratio has fallen. This would only increase the Inventory Holding costs. Collections have improved slightly but not of much avail if other costs keep shooting up.