Activity 2.2 TJX 2018 NORDSTROM INC. 1.33 Table 3: Other Financial Ratios Ratio Nordstrom Nordstrom 2018 2017 Current ratio 2.19 1.71 Quick ratio Cash ratio 0.31 0.03 Operating cash flow ratio 0.78 0.32 Liabilities to equity 1.37 Interest coverage (earning based) 8.2 9.6 1.08 0.73 Nordstrom Inc., a prominent U.S. retailer is a leading fashion specialty retailer. The company offers a wide variety of high-end apparel, shoes, and accessories for men, women and children. The company pursues a strategy of high quality, extraordinary service and premium price. 0.40 0.35 0.49 1.25 4.10 0.95 Dissatisfied with the inconsistent earnings performance in recent years, the company's management has focused in the last two years on improving its profit performance. With respect to the company's strategy and the information provided, TJX Companies pursue a strategy quite different from Nordstrom's: it operates off-price apparel and home fashions retail stores through its T.J. Maxx and Marshalls stores. The company's strategy is to offer brand-name goods at 20-60 percent below department store regular prices. The company seeks to accomplish this by buying opportunistically and by operating with a highly efficient distribution network and low cost structure. a. Examine how successful the management has been in achieving their objective. b. Illustrate how the different of their operating, investing and financing strategies affect their ratios. c. Determine which strategy is delivering better performance for shareholders. Nordstrom and TJX seem to follow different investment and financing strategies as well. Nordstrom makes significant investment in its stores whereas TJX leases its stores. Nordstrom has a credit card operation whereas TJX does not Ratio Net Profit Margin Asset Turnover ROA Financial Leverage ROE Table 1 Nordstrom 2018 Nordstrom 2017 | TJX 2018 4.1% 3.85% 5.3% 1.61 1.68 2.89 2.37 1.95 2.25 TJX 2018 100% (74.9) (16.2) Table 2: Common-Sized Income Statement and Profitability Ratios Nordstrom 2018 Nordstrom 2017 Line Items as a Percent of Sales Sales 100% 100% Cost of Sales (66.5) (67.9) Selling, General & Administrative expense (28.0) (27.3) Other income/expense 2.1 2.2 Net interest expense/income (0.9) (0.7) Income taxes (2.6) (2.5) Unusual gain/losses, net of taxes Net Income 4.1% 3.8% Key Profitability Ratios Gross Profit Margin 33.5% 32.1% EBITDA margin 10.4% 9.7% NOPAT margin 4.7% 4.3% Net Margin 4.1% 3.8% (3.4) (0.1) 5.3% 25.1% 10.6% 5.3% 5.3% Activity 2.2 TJX 2018 NORDSTROM INC. 1.33 Table 3: Other Financial Ratios Ratio Nordstrom Nordstrom 2018 2017 Current ratio 2.19 1.71 Quick ratio Cash ratio 0.31 0.03 Operating cash flow ratio 0.78 0.32 Liabilities to equity 1.37 Interest coverage (earning based) 8.2 9.6 1.08 0.73 Nordstrom Inc., a prominent U.S. retailer is a leading fashion specialty retailer. The company offers a wide variety of high-end apparel, shoes, and accessories for men, women and children. The company pursues a strategy of high quality, extraordinary service and premium price. 0.40 0.35 0.49 1.25 4.10 0.95 Dissatisfied with the inconsistent earnings performance in recent years, the company's management has focused in the last two years on improving its profit performance. With respect to the company's strategy and the information provided, TJX Companies pursue a strategy quite different from Nordstrom's: it operates off-price apparel and home fashions retail stores through its T.J. Maxx and Marshalls stores. The company's strategy is to offer brand-name goods at 20-60 percent below department store regular prices. The company seeks to accomplish this by buying opportunistically and by operating with a highly efficient distribution network and low cost structure. a. Examine how successful the management has been in achieving their objective. b. Illustrate how the different of their operating, investing and financing strategies affect their ratios. c. Determine which strategy is delivering better performance for shareholders. Nordstrom and TJX seem to follow different investment and financing strategies as well. Nordstrom makes significant investment in its stores whereas TJX leases its stores. Nordstrom has a credit card operation whereas TJX does not Ratio Net Profit Margin Asset Turnover ROA Financial Leverage ROE Table 1 Nordstrom 2018 Nordstrom 2017 | TJX 2018 4.1% 3.85% 5.3% 1.61 1.68 2.89 2.37 1.95 2.25 TJX 2018 100% (74.9) (16.2) Table 2: Common-Sized Income Statement and Profitability Ratios Nordstrom 2018 Nordstrom 2017 Line Items as a Percent of Sales Sales 100% 100% Cost of Sales (66.5) (67.9) Selling, General & Administrative expense (28.0) (27.3) Other income/expense 2.1 2.2 Net interest expense/income (0.9) (0.7) Income taxes (2.6) (2.5) Unusual gain/losses, net of taxes Net Income 4.1% 3.8% Key Profitability Ratios Gross Profit Margin 33.5% 32.1% EBITDA margin 10.4% 9.7% NOPAT margin 4.7% 4.3% Net Margin 4.1% 3.8% (3.4) (0.1) 5.3% 25.1% 10.6% 5.3% 5.3%