Course Project draft Financial Statement Analysis Project — A Comparative Analysis of Kohl’s Corporation and J.C. Penney Corporation

 

Your Course Project

 

Financial Statement Analysis Project — A Comparative Analysis of Kohl’s Corporation and J.C. Penney Corporation

   

Below is the link for the financial statements for Kohl’s Corporation for the 2010 fiscal year ending January 29, 2011. Under the term Groupings Filter, change the term All Forms to Annual Filings using the drop-down arrow and press Search.

   

You should then scroll down and select the 10k dated 3/18/2011 and choose to download in Word or PDF format.

   

http://www.kohlscorporation.com/InvestorRelations/sec-filings.htm

   

Below is the link for the financial statements for J.C. Penney Corporation for the 2010 fiscal year ending January 29, 2011. Under the term Groupings Filter, change the term All Forms to Annual Filings using the drop-down arrow and press Search.

   

You should then scroll down and select the 10k dated 3/29/2011 and choose to download in Word format.

   

http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-sec

   

A sample project template is available for download in Doc Sharing. The sample project compares the ratio performance of Tootsie Roll and Hershey using the 2009 financial statements of Tootsie Roll and Hershey provided in Appendix A and Appendix B of your textbook.

 

  

  

Description

 

This course contains a Course Project where you will be required to submit one draft of the project at the end of Week 5 and the final completed project at the end of Week 7. Using the financial statements for Kohl’s Corporation and J.C. Penney Corporation, respectively, you will calculate and compare the financial ratios listed further down this document
for the fiscal year ending 2010
and prepare your comments about the liquidity, solvency, and profitability of the two companies based on your ratio calculations.
The entire project will be graded by the instructor at the end of the final submission in Week 7 and one grade will be assigned for the entire project.

   

  

  

Overall Requirements

 

 For the Final Submission:

   

Your final Excel workbook submission should contain the following. You cannot use any other software but Excel to complete this project.

 

1.    

A completed worksheet title page tab, which is really a cover sheet with your name, the course, the date, your instructor’s name, and the title for the project.

 

2.    
A completed worksheet profiles tab, which contains a-one paragraph description regarding each company with information about their history, what products they sell, where they are located, etc.

 

3.    
All 18 ratios for each company with the supporting calculations and commentary on your worksheet ratio tab. Supporting calculations must be shown either as a formula or as text typed into a different cell. The ratios are listed further down this document. Your comments for each ratio should include more than just a definition of the ratio. You should focus on interpreting each ratio number for each company and support your comments with the numbers found in the ratios.

 

4.    
The Summary and Conclusions worksheet tab, which is an overall comparison of how each company compares in terms of the major category of ratios (liquidity, profitability, and solvency). A nice way to conclude is to state which company you think is the better investment and why.

 

5.    
The Bibliography worksheet tab must contain at least your textbook as a reference. Any other information you use to profile the companies should also be cited as a reference.

 

Required Ratios for Final Project Submission

 

1.     Earnings per share

 

1. Current ratio
2. Gross profit rate
3. Profit margin ratio
4. Inventory turnover ratio
5. Days in inventory

 

7.    
Receivables turnover ratio

 

8.    
Average collection period

 

1. Asset turnover ratio
2. Return on assets ratio 
3. Debt to total assets ratio
4. Times interest earned ratio
5. Payout ratio
6. Return on common stockholders’ equity ratio
7. Free cash flow
8. Current cash debt coverage ratio
9. Cash debt coverage ratio
10. Price/earnings ratio [For the purpose of this ratio, for both Kohl’s and J.C. Penney, use the market price per share on January 31, 2011.]

 

The Excel files uploaded in the Dropboxes should not include any unnecessary numbers or information (such as previous years’ ratios, ratios that were not specifically asked for in the project, etc.).

   

Please upload your final submission to the Week 7 Dropbox by Sunday at the end of Week 7.

 

For the Draft:

   

Create an Excel spreadsheet or use the project template to show your computations for the first 12 ratios listed above. The more you can complete regarding the other requirements, the closer you will be to completion when Week 7 arrives. Supporting calculations must be shown either as a formula or as text typed into a different cell. If you plan on creating your own spreadsheet, please follow the format provided in the Tootsie Roll and Hershey template file. 

   

Please upload your draft submission to the Week 5 Dropbox by Sunday at the end of Week 5.

   

Other Helpful information:

   

If you feel uncomfortable with Excel, you can find many helpful references on Excel by performing a Google search.

   

The Appendix to Chapter 13 contains ratio calculations and comparison comments related to Kellogg and General Mills, so you will likely find this information helpful.

   

BigCharts.com provides historical stock quotes.

   

Either APA or MLA style can be used to complete the references on your Bibliography tab. There is a tutorial for APA and MLA style within the Syllabus.

 

  

  

Grade Information

 

The entire project will be graded by the instructor at the end of the final submission in Week 7, and one grade will be assigned for the entire project. The project will count for 18% of your overall course grade.

     CategoryPoints%DescriptionDocumentation and Formatting95%The report will be submitted in the form of an Excel Workbook, with each page (worksheet) of the workbook named appropriately. Please do not use any other software (such as MS Works or Lotus) to complete the project. A quality report will include a title worksheet tab, a worksheet tab for the profile of the two companies, a worksheet tab for the ratio calculations and comments, a worksheet tab for the summary and conclusion, proper citations if applicable, and a Bibliography worksheet tab for the references.Organization and Cohesiveness95%A quality report will include the content described above in the documentation and formatting section. The ratios should be listed in the same order in which they appear in the project information above.Editing1810%A quality report will be free of any spelling, punctuation, or grammatical errors. Sentences and paragraphs will be clear, concise, and factually correct. Ratios will be expressed as numbers or percentages, depending on what is appropriate, as is shown in the textbook. Note that not all ratios are shown as percentages. Two decimal places is sufficient for each of the ratios. Content14480%A quality report will have correct ratio calculations and accurate supporting commentary. Any assumptions, if made, should be spelled out clearly. Supporting calculations must be shown either as a formula or as text typed into a different cell.Total180100%A quality report will meet or exceed all of the above requirements. 

Title Page

Go to Doc Sharing for the detailed Course Project instructions and grading rubric.

Complete your Title page on this tab.

Please include your name, the course, the date,

your instructor’s name, and the title for the project.

Profiles

Complete one paragraph profiling each company’s business including information, such as a brief history, where they are located, number of employees, the products they sell, etc. Please reference any websites you used for the Profiles on the

Bibliography

tab.

Tootsie

Roll Industries began in a small candy store in New York in 1896. Tootsie Roll is now headquartered in Chicago with operations throughout North America and with distribution channels in over 75 countries. According to Yahoo Finance, Tootsie Roll has 2,200 full-time employees. Tootsie Roll sells the following branded candy: Tootsie Roll, Tootsie Roll Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew, Double Bubble, Razzles, Caramel Apple Pop, and Junior Mints. Tootsie Roll had 2011 net product sales of $528 million. Hershey Company was founded by Milton S. Hershey in 1893 and is headquartered in Hershey, Pennsylvania. According to Yahoo Finance, Hershey had 12,100 full-time employees. Hershey is famous for the Hershey Bar,

Hershey’s

Kisses, Hershey’s Bliss, Reese’s, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. Hershey had net product sales of $6 billion for 2011.

Ratios

Tootsie Hershey’s

=

ratio

Gross profit

=

.2%

=

=

=

Net Sales $532,505 $6,080,788

,

5

times

365 = 64 365 =

Inventory turnover 5.7 days 6.0 days

$532,505 =

$6,080,788 =

365 365 =

365 =

13.4 days 15.4 days

Net Sales $532,505 =

$6,080,788 =

Net Income $43,938 =

$628,962 =

Average Total Assets $857,908 $4,342,466

=

=

Total Assets

=

=

=

=

$43,938 $628,962

$43,938 =

$628,962 =

minus capital expenditures minus cash dividends paid

= $15,632

=

Cash provided by operations

=

=

Cash provided by operations $50,390 =

$580,867 =

= 31

= 22

Use this Excel spreadsheet to compute ratios; show your computations for all ratios on this tab and also include your commentary.
The financial statements used to calculate these ratios are available in Appendix A and Appendix B of your textbook.
Interpretation and comparison between the two companies’ ratios (reading the Appendix of Chapter 13 will help you prepare the commentary).
The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio tells us. Indicate whether a higher or lower ratio is better. Then compare the two companies on this basis. Remember—each ratio below requires a comparison.
Earnings per share (basic – common)	As given in the income statement	$ 0.76	$ 2.85
Current ratio	Current assets	$212,201																																=	3.	64	$2,046,558	1.74
Current liabilities	$58,355	$1,173,775
	Gross profit	$166,242		31	$2,531,892	41.6%
		Net Sales				$532,505				$6,080,788
Profit margin ratio		Net Income				$43,938	8.3%				$628,962	10.3%
	Inventory turnover	Cost of Goods Sold	$					365	22		5.7	$3,548,896		6.0
Average Inventory	$64,206		times	$591,288
Days in inventory	365				days	61
Receivable turnover ratio	Net credit sales		13.4		15.4
Average Net Receivables	$39,645	$394,780
Average collection period	27.2	23.7
Receivable Turnover Ratio
Assets turnover ratio	0.62	1.40
	Average	Total Assets		$857,908		$4,342,466
Return on assets ratio	5.1%	14.5%
Debt to total assets ratio	Total Liabilities	$191,921	22.4%	$3,539,551	80.2%
$857,856	$4,412,199
Times interest earned ratio	Net Income + Int Expense + Tax Expense	$61,033	504.4	1,055,028	11.4
Interest Expense	$121	92,183
Payout ratio	Cash dividend declared on common stock	$18,407	41.9%	$304,083	48.3%
Net income
Return on common stockholders’ equity	Net income – Preferred stock dividend	6.6%	69.5%
Average common stockholders’ equity	666,671.50	$905,125
Free cash flow			Cash provided by operations		$15,632	($47,177)	$ (47,177)
Current cash debt coverage ratio		$50,390	0.86		$580,867	0.47
Average current liabilities	$58,430	$1,236,310
Cash debt coverage ratio	0.26	0.17
Average total liabilities	$191,236	$3,437,341
Price/earnings ratio	12/31/11	$23.67	$61.78
EPS as of 12/31/2011	$0.76	$2.85

Summary

You all get the chance to play the role of financial analyst below. The summary should be a comparison of each company’s performance for each major category of ratios (liquidity, solvency, and profitability) listed below. Focus on major differences as you compare each company’s performance. A nice way to conclude is to state which company you feel is the better investment and why.

Liquidity: Tootsie Roll has the advantage for the current ratio and current cash debt coverage ratio. Tootsie Roll has $3.64 in current assets for every dollar in current liabilities while Hershey has only $1.74 in current assets for every dollar in current liabilities. Hershey has the advantage for inventory turnover (6.0 to 5.7) and accounts receivable turnover (15.4 to 13.4).

Solvency: Tootsie Roll has the advantage for each of the solvency ratios. Tootsie Roll can cover their interest expense 504 times with income before interest and taxes while Hershey can only cover their interest expense 11 times with their income before interest and taxes. Tootsie Roll has positive free cash flow of $15.6 million while Hershey has negative free cash flow of $47 million . Free cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or by back stock.

Profitability: Hershey has the advantage for each of the profitability ratios with the exception of the Price-Earnings ratio. Hershey has a significant edge in return on common stockholders’ equity with a 69.5% return on common stockholders’ equity as compared to Tootsie Roll’s 6.5% return on common stockholders’ equity. Hershey also has a higher gross profit rate (41.6% to 31.2%) and higher profit margin ratio (10.3% to 8.3%).

Conclusion: Tootsie Roll is the safer investment when you examine the liquidity and solvency ratios; however, Hershey has the edge for all of the profitability ratios with the exception of the price earnings ratio. For the conservative investor, Tootsie Roll looks like the way to go because of their strong current ratio and solvency ratios. For the growth-oriented investor, Hershey is the way to go because of their stronger profitability ratios.

Bibliography

The Appendices of your textbook and any information you use to profile the companies should be cited as a reference below.

Big Charts for Hershey (2013). Retrieved August 13, 2013 from http://bigcharts.marketwatch.com/historical/default.asp?symb=hsy&closeDate=12%2F30%2F11&x=0&y=0

Big Charts for Tootsie Roll (2013). Retrieved August 13, 2013 from http://bigcharts.marketwatch.com/historical/default.asp?symb=tr&closeDate=12%2F30%2F11&x=0&y=0

Hershey’s (2013). Retrieved August 13, 2013 from http://www.hersheys.com/pure-products.aspx

HSY Profile (2013). Retrieved August 13, 2013 from http://finance.yahoo.com/q/pr?s=HSY+Profile

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2013). Financial accounting: Tools for business decision making, 7th ed. Danvers, MA: John Wiley & Sons, Inc.

Tootsie Roll Industries (2013). Retrieved August 13, 2013 from http://www.tootsie.com/

TR Profile (2013). Retrieved August 13, 2013 from http://finance.yahoo.com/q/pr?s=TR+Profile