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Nordstrom Financial Analysis

1481 words - 6 pages


In this paper I chose to analyze Nordstrom Inc. Based on financial analysis it is obvious that this popular retailer has created a well known name brand for its merchandise. Today this retailer has many loyal customers from all around the world. After my analysis I recommend that an investor buy Nordstrom stock.  Even though the stock price is currently below its usual price range, the company’s overall financial condition is still positive.  

When comparing key fundamental ratios to industry standards, it seems that the company is well positioned to succeed in the future.   The recent decline in stock value is more likely because of the overall current condition ...view middle of the document...

Even though the company’s capital budget is significantly higher than its historical norm, plans for future budgeting for the next five years are being set and will begin to take effect for fiscal 2007 at $3 billion. Nordstrom’s taking part in the top 55 U.S. markets is projected to increase from 44 to 51 during these next five years. The management team’s projections are for earnings to rise 8%-10% in the next 3 to 5 years. Nordstrom’s reasoning behind this increase is based on new efficiencies, the addition of new of high-end clothing brands, store opening plans, and a declining share count.

Competitive Environment

In order for Nordstrom to remain at the top of their industry, when compared to competitors, they are always sure their customers are satisfied. They have expert selling points that are unique from those of competitors along with strategic plans for diversifying the company. Not only does this retailer compete on pricing but also on service. Many of Nordstrom’s shoppers are loyal to the retailer and feel that in the long-run paying Nordstrom prices are cheaper than competing department stores because of the customer service they receive when buying or returning an item.

Ratios & Ratio Analysis

Liquidity (short-term solvency)

Working Capital = 3,398,000

Current Ratio = 3,398,000/1,635,000= 2.07

Quick Ratio = (92,000+ NA +2,045,000)/1,635,000 = 1.31 (THOM)

=(3,398,000-1,000,000)/1,635,000 = 1.47 (TEXT)

Cash Ratio = 92,000/1,635,000 = .056

Long-Term Solvency Ratios

Debt Ratio = total lib/ total assets = 4,485,000/5,600,000 = .80

Long-term Debt Ratio = 2,157,000/(2,157,000+ 1,115,000) = 1.93

Debt-to-Equity = 4,485,000/ 1,115,000 = 4.02

Long-term Debt to Equity = 4.02

Equity Multiplier = 5,600,000/ 1,115,000 = 5.02

Times Interest Earned = (1,173,000+ 90,000)/90,000 = 14.03

Cash Coverage = (1,173,000+269,000)/90,000 = 16.02

Profitability Ratios

Operating Profit Margin = (1,173,000 + 90,000)/8,828,000 = .14

Net Profit Margin = 706,240/8,828,000 = .08

Asset Management Ratios

Inventory Turnover = 8,828,000/956,000 = 9.23 (THOM)

= 5,526,000/956,000 = 5.78 (TEXT)

Days Sales in Inventory = 365/8.82 = 38.99 (THOM)

= 365/5.52 = 66.12 (TEXT)

Receivables Turnover = 8,828,000/ 2,045,000 = 4.94

Days in Receivables = 365/4.31 = 84.69

Fixed Asset Turnover = 8,828,000/1,938,000 = 4.56

Total Asset Turnover = 8,828,000/5,600,000 = 1.57

ROA = 715,000/5,600,000 = .13

ROE = 715,000/457,000 = .64

DuPont Analysis

ROA= 715,000/ 5,600,000 = 13%

ROE = 715,000/ 1,115,000= 64%

When comparing the retail industry’s fundamental ratio averages with those of Nordstrom Inc. in 2008, it is evident that financially Nordstrom is doing well compared to their competitors. When looking at the liquidity of Nordstrom’s Assets, the company is able to turn in their assets into...

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