Running head: COMPARATIVE AND RATIO ANALYSIS: MACY'S 1

Comparative and Ratio Analysis: Macy's

Julie Bentley, Sasha Bell, Tamara Mackey, Rebecca Hanger, and Michelle Carroll

ACC/561

January 27, 2014

Jared Jones

COMPARATIVE AND RATIO ANALYSIS: MACY'S 2

Comparative and Ratio Analysis: Macy's

Introduction

On March 6, 1929 Federated Department Stores Inc. opened up their doors to what is

now one of the largest and most influential retail businesses in history. After the Great

Depression and World War II the corporations were obvious to the current times in history and

with resilience and flexibility focusing on their consumers’ interests. The Federated stores later

became Macy’s in June 2007. Even though Macy’s retailers were combined with other stores

they agreed to maintain their financial interests separate.

Eventually Macy’s stores expanded outside of shopping malls as they progressed into the

fast growing resource of sales by Internet; which allows shoppers to purchase items online.

Macy’s currently has 840 stores in 45 states, District of Columbia, Guam, and Puerto Rico. The

corporation holds a diverse workforce of approximately 175,700. Macy’s premier retailers

embrace their sales of $27.7 billion for the fiscal year 2012.

A company, such as Macy’s will analyze their financial statements to increase profits and

utilize competitive markets to enhance business sales. Executives and managers use comparative

ratio analysis to keep up with Macy’s financial performance, the demand of consumers and

dreams of the founders of Macy’s. By also separating the ratios into groups such as profitability,

solvency, liquidity, financial leverage, and asset turnover will help the company with their

analysis.

Comparative Analysis of Macy’s Department Store

Macy’s follows the philosophy of one founder Fred Lazarus Jr., who strives for “a living

mirror of our civilization in which we see the constant changing needs and wishes of our people”

(macysinc., 2013). Research will provide a comparative and ratio analysis of Macy’s. Macy’s

COMPARATIVE AND RATIO ANALYSIS: MACY'S 3

use their financial statements to provide understanding of the company’s profitability; this could

entail the revenues and ratios on two different scales. Tracking the financial leverage over a

period of time will increase Macy’s financial performance. Accounting data will allow managers

to plan and meet short-term debt obligations. For example, immediate monies that have to go

directly into generating profits: products, shipping, and advertising.

Ratio Analysis

Ratio analysis is a useful management tool that will improve your understanding of

financial results and trends over time, and key indicators of organizational performance. It is

used to pinpoint strengths and weaknesses, and what they provide from which strategies and

initiatives can be formed, management effectiveness, and mission impact on the location that the

organization touches (demonstratingvalue.org, 2013). The four major types of financial ratio

analysis is divided into four major categories: 1) Profitability sustainability, 2) Operational

Efficiency, 3) Liquidity, and 4) Leverage (Funding – Debt, Equity, Grants)

(demonstratingvalue.org, 2013). The ratio analysis that was done for Macy’s, Inc. showed the

dividend yield continuing at 1.82% in the positive percentage range. The liquidity, solvency, and

profitability of Macy’s over comparison years of 2010 through 2012 showed that with the

reorganizational strategies implemented in 2009, with continued sales, it will remain solvent for

years in the future if the figures continue as projected.

The Macy’s, Inc. annual report 2012 reported net sales increased $1,281 million or 4.9%

compared to 2011. Net sales in 2010 are $25,003.0 million compared to $26,405.0 million in

2011, with another increase of $ 1,402.0 million or 5.6% increase. The sales from the internet

business increased 41.0% in 2012 from 2011 figures (macysinc.com, 2013). Cost of sales for

2012 increased $800 million from 2011 (macysinc.com, 2013).

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Total assets in 2010 were $20,631,000 million. The total assets in 2011 are $22,095,000

million and in 2012 was $20,991,000 million. The total liabilities for 2010 are $4,991,000

million. In 2011, the total liabilities were $6,263,000 million and in 2012 the total liabilities

were $5,075,000 million. The cash flow sheet showed Net Income of $847,000 million in 2010,

$1,256,000 million in 2011, and $1,335,000 million in 2012. The net cash flow in 2010 was

($222,000) million. In 2011 it was $1,363,000 million, and in 2012 it was ($991,000) million.

The income statement showed in 2010 total revenue was $25,003,000 million dollars. In 2011, it

was $26,405,000 million, and in 2012 it was $27,686,000 million. The cost of revenue in 2010

was $14,824,000 million. In 2011, the cost of revenue was $15,738,000, and in 2012 it was

$16,538,000 million (Nasdaq.com, 2014).

The financial liquidity current ratio in 2010 showed 138% increase. It increased again in

2011 by 2% to 140%. In 2012, the current ratio increased 14% to 155%. The profitability ratio

gross margin in 2010 was 41%. In 2011, it decreased to 40%, and stayed at that percentage in

2012 at 40% (Nasdaq.com 2014). The liquidity of Macy’s increased and the profitability

remained constant at 40% for the last two years (macysinc.com, 2013). This shows that

managements operating effectiveness is constant.

Liquidity and Ratio Analysis

Liquidity measures the ability of a company to pay debts in the short term and their

ability to generate cash when needed. Creditors and suppliers use the information from a ratio

analysis to make decisions about extending credit. A few types of liquidity ratios are:

Current Ratio= current assets divided by current liabilities

This ratio will convey that for every dollar of current liabilities, the company has

X amount in current assets

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Quick Ratio= current assets-inventory/ current liabilities (Kimmel, Weygandt,&

Kieso, 2011).

According to the data reported by Macy’s on the NASDAQ web site, and the calculations

below Macy’s increased their current ratio from 2012 to 2013 by .15% meaning that for every

dollar in liabilities, Macy’s had $1.55 dollars in assets. This also makes sense when reviewing

Macy’s Quick ratio which decreased by .08%. However, the increased assets in 2013 over 2012

seem to primarily be due to an increase in inventory from 2012 to 2013. Additional review is

required to determine if Macy’s increase of inventory from 2013 over their year-end inventory in

2012 materialized in lower revenue in 2013 as compared to 2012.

Profitability of Comparative and Ratio Analysis

The profitability of the comparative analysis is focused on an intracompany basis which

means the analysis is based on the financial trends and affiliation in Macy’s Inc. There are three

types of analysis methods that can compare the financial information which is: horizontal,

vertical, and, ratio analysis. In the horizontal analysis the information used was a net income of:

$329,000 thousand in 2010, $847,000 thousand in 2011, and $1,256,000 million in 2012. To get

Liquidity Ratio Analysis for Macy's Inc.    Liquidity Ratio   2/2/2013 1/28/2012Current Ratio= current assets/current liabilities 1.55 1.40current assets   7,876,000 8,777,000current liabilities   5,075,000 6,263,000

Quick Ratio= current assets- inventory/ current liabilities   0.51 0.58Current Assets   7,876,000 8,777,000Inventory 5,308,000 5,117,000Current Liabilities   5,075,000 6,263,000http://www.nasdaq.com/symbol/m/financials?query=ratios

COMPARATIVE AND RATIO ANALYSIS: MACY'S 6

the change since base period take the current year amount minus the base year amount and divide

by the base year amount. Macy’s would take $1,256,000 million minus the $329,000 thousand

and divide by $329,000 thousand which equals 2.82% is the amount of change over the base

period from 2010 to 2012. For the amount of change over the 2010 and 2011 you will take

$847,000 thousand minus $329,000 divided by $329,000 thousand which equals 1.57%.

The profitability ratios are the financial measurements that show how a company is

performing and how the company is able to increase earnings compared to its expenses. The

profitability net income of Macy’s Inc. was $329,000 in 2010, $847,000 in 2011, and $1,256,000

in 2012. The net income shows that Macy’s Inc. performance has improved significantly since

2010. To get the profitability ratio for the profit margin for Macy’s, the formula is net income

divided by net sales. The profit margin for 2010 was 1%, for 2011 it was 3%, and 2012 was 5%.

These percentages show what percentage of a dollar of sales Macy’s keeps (Nasdaq.com, 2014).

Conclusion

Financial analysis is used by many organizations for many different reasons and by

many different areas of business. Ratio analysis is used to evaluate past performance in financial,

production, inventory, shipping areas, as well as, many other segments of business. The financial

analysis of Macy’s Inc. provided by Team C offers an indication that Macy’s has made valuable

business decisions which affect the financial effectiveness of the organization. Ratio and

comparative analysis offer investors the information necessary to make insightful decisions

toward future financial prosperity and sustainability.

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References

Demonstrating Value of Financial ratio Analysis. (2013). Retrieved from

http://www.demonstratingvalue.org/resources/financial-ratio-analysis

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision

making ( 4th ed.). NJ: John Wiley & Sons

Macy's Inc. . (2012). Macy's annual report. Retrieved from

http://www.macysinc.com/Assets/dors/for-investors/annual-report/2012_ar.pdf.

Macy’s inc. (2013). Retrieved from http://www.macysinc.com/about-us

Nasdaq Stock Market. (2014). Nasdaq.com. Retrieved from

http://www.nasdaq.com/symbol/m/financials?query=income-statement