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 known only as Sears, or Sears and Roebuck among older Americans and Southerners) is an American midrange chain of international department stores founded by founded by Richard Sears and Alvah Roebuck in the late 19th century. 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.
• Founded by Sam Walton in 1962 Wal-Mart Stores, Inc. is an American public corporation that runs a chain of large, discount department stores. It is the world's largest public corporation by revenue, according to the 2008 Fortune Global 500 Wal-Mart, Inc. company purpose is saving people money so they can live better

Condensed Balance Sheet
Sears, Roebuck
Fiscal years ended January 31, Current Assets Fixed Assets Property, plant & equipment Depreciation & Amortization Capital Lease Other assets & deferred charges Total Fixed assets Total Assets Current Liabilities LTL Income taxes and interest Total shareholders equity Total Liabilities and share holders Equity 1997 30682 1996 28447

Wal-Mart Stores
1998 19352 1997 17993

10826 (4910) 498 1604 8018 38700 15790 13071 3977 5862 38700

9804 (4359) 433 1842 7720 36167 14950 12170 4102 4945 36167

27376 (6810) 3040 2426 26032 45384 14460 9674 2747 18503 45384

23182 (5640) 2782 1287 21611 39604 10957 10016 1488 17143 39604

Condensed Income Statement
Fiscal years ended January 31, Sales Costs and Expenses COGS Selling & Admin Expenses Provision for uncollectible accounts Depreciation & Amortization Interest Reaffirmation charge Capital Leases Total costs and expenses Operating Income Other income Income before income taxes (PBT) Income taxes Income from continuing operations Discontinued operations Net Income (PAT) Sears, Roebuck and Co., 1997 1996 1995 41296 38064 34835 Wal-Mart Stores 1998 1997 1996 119299 106178 94773

26769 8331 1532 786 1409 475 -39302 1994 106 2100 912 1188 -1188

24889 8059 971 697 1365 --35981 2083 22 2105 834 1271 -1271

23160 7428 589 580 1373 --33130 1705 23 1728 703 1025 776 1801

93438 83510 19358 16946 --555 629 78 27 --229 216 113658 101328 5641 -5641 2115 3526 -3526 4850 -4850 1794 3056 -3056

74505 15021 -692 13 -196 90427 4346 -4346 1606 2740 -2740

Condensed Cash Flow Statement
Fiscal years ended January 31, Net Cash provided by Operating Activities Net Cash used by Investing Activities Net Cash provided by Financing Activities Effect of exchange rate Net increase in cash & cash equivalent Sears, Roebuck and Co., 1997 1996 1995 (556) (1072) 1330 (4) (302) 1189 (1443) 309 (1) 54 415 (712) 361 (6) 58 Wal-Mart Stores 1998 1997 1996 7123 (4421) (2138) -564 5930 (2068) (3062) -800 2383 (3332) 987 -38

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

DuPont Analysis – RONW – WALMART
RONW=PAT/NW 1997 1998 0.19 0.18

PAT/SALES 1997 1998 0.03 0.03

SALES/TA 1997 1998 2.68 2.63

TA/NW 1997 1998 2.31 2.45 FA/NW 1997 1998 1.26 1.41 CA/NW 1997 1998 1.05 1.05

COGS/SALES 1997 1998 0.79 0.78

SALES/FA 1997 1998 4.91 4.58

SALES/CA 1997 1998 5.92 6.16

INTEREST/SALES 1997 1998 0.01 0.01

SALES/INVENTORY 1997 1998 6.68 7.23

SALES/OTHER CA 1997 1998 288.5% 276.2%

TAX/SALES 1997 1998 0.02 0.02

SALES/DEBTORS 1997 1998 125.65 122.23

SALES/CASH 1997 1998 120.25 82.45

SALES/LOANS&ADV 1997 1998 NIL NIL

DuPont Analysis – RONW – SEARS
RONW=PAT/NW 1996 1997 0.26 0.20

PAT/SALES 1996 1997 0.03 0.03

SALES/TA 1996 1997 1.05 1.07

TA/NW 1996 1997 7.31 6.60 FA/NW 1996 1997 1.56 1.37 CA/NW 1996 1997 5.75 5.23

COGS/SALES 1996 1997 0.65 0.65

SALES/FA 1996 1997 4.93 5.15

SALES/CA 1996 1997 1.34 1.35

INTEREST/SALES 1996 1997 0.04 0.03

SALES/INVENTORY 1996 1997 8.19 8.19

SALES/OTHER CA 1996 1997 109.38 43.20

TAX/SALES 1996 1997 0.02 0.02

SALES/DEBTORS 1996 1997 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 1997 1996 1998 1997 0.17 0.16 0.23 0.21 0.09 0.09 0.06 0.05 0.65 0.65 0.79 0.80 0.24 0.24 0.16 0.16 1.07 6.44 1.35 1.97 6.44 185.22 44.58 1.69 2.27 6.60 1.69 41,296 113.14 1.05 6.48 1.34 1.68 6.48 192.78 44.55 1.70 2.22 7.31 1.70 38,064 104.28 2.60 5.00 6.10 120.86 48.62 3.02 51.05 1.61 4.69 2.45 1.61 117,958.00 323.17 2.65 5.16 5.83 124.09 81.48 2.94 55.34 1.46 3.95 2.31 1.46 104,859.00 287.28

Profitability ROCE PBIT/SALES COGS/SALES OPEX/SALES Efficiency SALES/TA SALES/FA SALES/CA SALES/DEBTORS SALES/OTHER AS DD ID Solvency TA/CE TA/LTL TA/EQUITY TA/CAPITAL TOTAL SALES SALES PER DAY

Sears TA Break-up
Total Assets 1997
4% 17% 5% 1% 9%

13%

51%

Cash & Cash Equivalents Total receivables Other current assets Other long term assets

retained interest in Credit card receivables Inventories Fixed Assets

Sears Funding Sources-1997 Break-up

15% 10%

20%

17% 34% 4%

Short term loans Unearned revenues & unpaid taxes retirement benefits & others

Payables Long term Loans 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. 2. 3. Wal-Mart used CA 5 times more efficiently to generate Sales than Sears. Wal-Mart had less debtors compare to Sears. 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. The analysis also shows that the current assets have not generated enough sales/revenue for Sears when compared to that of Wal-Mart 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.

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