Valuation of Nordstrom Inc, (JWN) Company

You have been hired as new analyst at Kash Financial Services and have been asked to demonstrate your finance skills that you learned in the college. You have been assigned to James Thomas who is one of the top portfolio managers of the company. Your first assignment is to analysis Nordstroms department stores and recommend a buy/or sell price to Thomas.

You have taken courses in your program which have dealt with investment and corporate finance.

To value the company, you decided to use the two widely valuation models that you learned in your classes- discounted free cash flows and relative valuation based on comparable companies. However, you remembered that your instructor had told the class that these two valuation methods would result in widely different prices.

In your program you remembered you had taken some courses in finance from professor Kashefi at the local state university. Professor Kashefi teaches in corporate finance and investment area and is recognized for his specialization in valuations of the companies. Upon contacting him for some help, he recommended that you take the following steps:

Go to http://finance.yahoo.com. Under Market Summary, you will find the yield-to-maturity for ten-year Treasury bonds listed as 10 Year Bond (%). Collect this number as your risk-free rate.

In the box next to the Get Quotes button, type Nordstroms ticker symbol (JWN) and press enter. Once you see the summary information for Nordstrom, find and click Statistics on the screen. From the key statistics, collect Nordstroms market capitalization (its market value of equity) and all relevant information such as enterprise value (market-value equity + net debt), net debt is total market value of the debt minus cash, beta, and relative values.

Under Financial get the most recent three years of the three financial statements and copy and paste (or export) them to an excel file.

Section I- Free Cash Flow Forecasting

To value the stock using discounted cash flow model estimate you need to forecast the free cash flow (FCF) based on the last three-year averages of the following ratios:

EBIT/Sales

Tax Rate

Property and Equipment

Depreciation as a percent of property and equipment

Net Working Capital (NWC) and change in networking capital

Click on Analysis and gather the most recent long-term growth rate for the next five years. Forecast future sales for the next five years. Using the forecasted sales estimate, the ratios of section-1 for the next five years.

Remember the free cash flow is estimated based on:

FCF =EBIT + Depreciation Tax payment change in NWC Net Capital Expenditure