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Financial Accounting

Assignment

Team Members

1. Shoeb Ansari
2. Raja
3. Rakesh Pillai
4. Jayeetha
Company

Sears, Roebuck and Co. vs.
Wal-Mart Stores, Inc
Objective
• To find ROE for the companies
• Decompose ROE (DuPont Analysis)
• Comment on the performance of the companies (Ratio
Analysis)
• Convert the given BS into condensed BS
• Do we recommend investing into these share after
analysis for the following year of the given balance sheet
• Current position on the two companies
Company Profile
• Sears, Roebuck and Co. (sometimes • Founded by Sam Walton in 1962 Wal-Mart
known only as Sears, or Sears and Stores, Inc. is an American public
corporation that runs a chain of large,
Roebuck among older Americans and
discount department stores. It is the
Southerners) is an American mid- world's largest public corporation by
range chain of international revenue, according to the 2008 Fortune
department stores founded by founded Global 500
by Richard Sears and Alvah Roebuck • Wal-Mart, Inc. company purpose is saving
in the late 19th century. people money so they can live better
• Started as a catalogue business in
11886 and grew into one of the largest
retail and departmental stores until
1997.
• Sears merged with Kmart in early
2005, creating the Sears Holdings
Corporation.
• It continues to operate stores under
both the Sears and Kmart brands.
Condensed Balance Sheet
Sears, Roebuck Wal-Mart Stores
Fiscal years ended January 31, 1997 1996 1998 1997

Current Assets 30682 28447 19352 17993

Fixed Assets
Property, plant & equipment 10826 9804 27376 23182
Depreciation & Amortization (4910) (4359) (6810) (5640)
Capital Lease 498 433 3040 2782
Other assets & deferred charges 1604 1842 2426 1287
Total Fixed assets 8018 7720 26032 21611

Total Assets 38700 36167 45384 39604

Current Liabilities 15790 14950 14460 10957

LTL 13071 12170 9674 10016
Income taxes and interest 3977 4102 2747 1488
Total shareholders equity 5862 4945 18503 17143
Total Liabilities and share holders Equity 38700 36167 45384 39604
Condensed Income Statement
Sears, Roebuck and Co., Wal-Mart Stores
Fiscal years ended January 31, 1997 1996 1995 1998 1997 1996

Sales 41296 38064 34835 119299 106178 94773

Costs and Expenses
COGS 26769 24889 23160 93438 83510 74505
Selling & Admin Expenses 8331 8059 7428 19358 16946 15021
Provision for uncollectible accounts 1532 971 589 -- -- --
Depreciation & Amortization 786 697 580 555 629 692
Interest 1409 1365 1373 78 27 13
Reaffirmation charge 475 -- -- -- -- --
Capital Leases -- -- -- 229 216 196
Total costs and expenses 39302 35981 33130 113658 101328 90427

Operating Income 1994 2083 1705 5641 4850 4346
Other income 106 22 23 -- -- --
Income before income taxes (PBT) 2100 2105 1728 5641 4850 4346
Income taxes 912 834 703 2115 1794 1606
Income from continuing operations 1188 1271 1025 3526 3056 2740
Discontinued operations -- -- 776 -- -- --
Net Income (PAT) 1188 1271 1801 3526 3056 2740
Condensed Cash Flow Statement

Sears, Roebuck and Co., Wal-Mart Stores
Fiscal years ended January 31, 1997 1996 1995 1998 1997 1996

Net Cash provided by Operating Activities (556) 1189 415 7123 5930 2383
Net Cash used by Investing Activities (1072) (1443) (712) (4421) (2068) (3332)
Net Cash provided by Financing Activities 1330 309 361 (2138) (3062) 987
Effect of exchange rate (4) (1) (6) -- -- --
Net increase in cash & cash equivalent (302) 54 58 564 800 38
Ratio’s Comparisons

Sears,Roebuck and Co., Wal-Mart Stores, Inc
Ratios : 1997 1996 1998 1997
Current Ratio 1.9 1.9 1.3 1.6
ROTA 3.1% 3.5% 7.8% 7.7%
ROE 20.3% 25.7% 19.1% 17.8%
PBIT/SALES 0.09 0.09 0.06 0.05
SALES/TA 1.07 1.05 2.60 2.65
TA/CE 1.69 1.70 1.61 1.46
ROCE 0.17 0.16 0.23 0.21
ROCE 0.17 0.16 0.23 0.21
DuPont Analysis – RONW – WALMART

RONW=PAT/NW
1997 1998
0.19 0.18

PAT/SALES SALES/TA TA/NW
1997 1998 1997 1998 1997 1998
0.03 0.03 2.68 2.63 2.31 2.45

FA/NW
1997 1998
COGS/SALES SALES/FA SALES/CA 1.26 1.41
1997 1998 1997 1998 1997 1998
0.79 0.78 4.91 4.58 5.92 6.16
CA/NW
1997 1998
INTEREST/SALES SALES/INVENTORY 1.05 1.05
1997 1998 1997 1998
0.01 0.01 6.68 7.23 SALES/OTHER CA
1997 1998
288.5% 276.2%
TAX/SALES SALES/DEBTORS
1997 1998 1997 1998
0.02 0.02 125.65 122.23 SALES/LOANS&ADV
1997 1998
NIL NIL
SALES/CASH
1997 1998
120.25 82.45
DuPont Analysis – RONW – SEARS

RONW=PAT/NW
1996 1997
0.26 0.20

PAT/SALES SALES/TA TA/NW
1996 1997 1996 1997 1996 1997
0.03 0.03 1.05 1.07 7.31 6.60

FA/NW
1996 1997
COGS/SALES SALES/FA SALES/CA 1.56 1.37
1996 1997 1996 1997 1996 1997
0.65 0.65 4.93 5.15 1.34 1.35
CA/NW
1996 1997
INTEREST/SALES SALES/INVENTORY 5.75 5.23
1996 1997 1996 1997
0.04 0.03 8.19 8.19 SALES/OTHER CA
1996 1997
109.38 43.20
TAX/SALES SALES/DEBTORS
1996 1997 1996 1997
0.02 0.02 1.94 2.05 SALES/LOANS&ADV
1996 1997
10.77 7.93
SALES/CASH
1996 1997
57.67 115.35
DuPont Analysis – RONW
DUPONT ANALYSIS :
Sears,Roebuck and Co. Wal-Mart Stores, Inc
Profitability 1997 1996 1998 1997
ROCE 0.17 0.16 0.23 0.21
PBIT/SALES 0.09 0.09 0.06 0.05
COGS/SALES 0.65 0.65 0.79 0.80
OPEX/SALES 0.24 0.24 0.16 0.16
Efficiency
SALES/TA 1.07 1.05 2.60 2.65
SALES/FA 6.44 6.48 5.00 5.16
SALES/CA 1.35 1.34 6.10 5.83
SALES/DEBTORS 1.97 1.68 120.86 124.09
SALES/OTHER AS 6.44 6.48 48.62 81.48
DD 185.22 192.78 3.02 2.94
ID 44.58 44.55 51.05 55.34
Solvency
TA/CE 1.69 1.70 1.61 1.46
TA/LTL 2.27 2.22 4.69 3.95
TA/EQUITY 6.60 7.31 2.45 2.31
TA/CAPITAL 1.69 1.70 1.61 1.46
TOTAL SALES 41,296 38,064 117,958.00 104,859.00
SALES PER DAY 113.14 104.28 323.17 287.28
Sears TA Break-up
Total Assets 1997

4%
1% 9%
17%

5%

13%
51%

Cash & Cash Equivalents retained interest in Credit card receivables
Total receivables Inventories
Other current assets Fixed Assets
Other long term assets
Sears Funding Sources-1997 Break-up

15% 20%

10%

17%

34% 4%

Short term loans Payables
Unearned revenues & unpaid taxes Long term Loans
retirement benefits & others Share holders equity
Wal-Mart share price as on
16/05/08
Sears share price as on
16/05/08
Sears shares are de-listed and they are not in the
business of retailing like Wal-Mart. Sears' stores sell
apparel, tools, and appliances, and provide home services
(remodeling, appliance repairs) under the Sears Parts &
Repair Services and A&E Factory brands. Its Web site also
sells appliances and tools. Sears was acquired by Kmart
Holding Corp. in 2005. The deal formed a new parent
company, Sears Holdings, which owns both chains. was
acquired by Kmart Holding Corp. in 2005. The deal formed
a new parent company, Sears Holdings, which owns both
chains.
Analysis
1. Wal-Mart used CA 5 times more efficiently to generate Sales than
Sears.
2. Wal-Mart had less debtors compare to Sears.
3. The higher Sales/Assets ratio for Wal-Mart indicates that the
operational efficiency is better and returns from fixed assets in
higher when compared to Sears.
4. The analysis also shows that the current assets have not
generated enough sales/revenue for Sears when compared to
that of Wal-Mart
5. The sales/cash for Sears shows that there has been increase in
sales but a decrease in the cash collections for the year 1997,
and this is in sharp contrast to the previous year, which in turn can
lead to a liquidity crisis. At the same time, Wal-Mart continued to
maintain almost high ratio for the consecutive years.