Financial Statement Analysis of Macy's Inc. - University Report

This report provides a comprehensive financial statement analysis of Macy's Inc., examining its performance over the years 2016-2018. The analysis covers sales trend analysis, margin analysis (gross, operating, and net profit margins), investment decisions (asset turnover and working capital ratios), and financial decisions (debt and current ratios). The report also includes a return analysis, focusing on return on capital employed (ROCE) and return on equity (ROE). A comparative analysis with Nordstrom Inc. is included to assess Macy's relative performance. The report concludes with an overall assessment of Macy's financial health and investment potential, highlighting key findings and providing recommendations based on the financial data and ratio analysis.

Running Head: Financial Statement Analysis of Macy’s Inc.
Financial Statement Analysis of Macy’s Inc.
Name of the Student
Name of the University
Author Note

1Financial Statement Analysis of Macy’s Inc.
Executive Summary
Macy’s Inc has been considered as one of the premier retailers in the nation and the
well-known retail brands of Macy’s include Macy’s, Bluemercury and Bloomingdale’s. This
company is headquartered in New York and it was founded in the year 1929 by Xavier
Warren. It is an American holding company. The management team of Macy’s is the mixture
of various experts and veterans in the field of retail and technology. Currently it is working
with an approximate of 125,000 employees and 755 stores (Macy's, Inc., 2020). This paper
has been prepared based on the financial analysis of this company. The financial analysis
includes the calculation and discussion about the key ratios of the company for the last 3
years like the working capital ratios, asset turnover ratios, debt ratio along with the trend
analysis of the sales as well as the profit of the company. Lastly, the paper discusses about
the reasons behind those fluctuations in the trend and the ratio with a proper analysis about
the investment opportunities in Macy’s by comparing the ratios with one of its competitor
Nordstrom Inc.

2Financial Statement Analysis of Macy’s Inc.
Table of Contents
Profitability Analysis.................................................................................................................3
Sales Trend Analysis..............................................................................................................3
Margin Analysis.....................................................................................................................3
Investment Decisions.............................................................................................................5
Financial Decisions................................................................................................................6
Return Analysis......................................................................................................................7
Conclusion and Recommendation..............................................................................................8
References..................................................................................................................................9
Appendices...............................................................................................................................11

3Financial Statement Analysis of Macy’s Inc.
Profitability Analysis
Sales Trend Analysis
Considering the sales trend analysis it has been found that the revenue for the three
years were $25,908 million for the year 2016, $24,939 million for the year 2017 and $24,971
million for the year 2018. Thus, from here it has been calculated that there has been 4%
decrease in the sales after taking 2016 as the base year. The decrease is due to the seasonal
factor as the most sales are made in the months of November and December and also the
customer taste and preferences changes. Similarly, the gross profit for the three years have
been recorded as $10,242 million for 2016, $9,578 million for 2017 and $9,756 million for
2018 showing a decrease of 5% in the gross profit for F.Y 2017 and 2018. However, there
has been increase in net profit in F.Y 2017 by 151% as compared to the year 2016 from $619
million to $1,555 million. On the other hand, there has been again decrease in the net profit in
F.Y 2018 by 74% to $1,098.
Margin Analysis

4Financial Statement Analysis of Macy’s Inc.
The margin analysis has been done after taking into consideration the gross profit
margin, the operating profit margin and the net profit margin. Comparing the financial years
2017 and 2018 with F.Y 2016 which has been taken as the base year it has been found that
there has been 1% decrease in the gross profit margin. Alternatively, the operating profit
margin has shown an increase of 41% in the F.Y 2017 and 9% decrease in the year 2018. The
reason behind increase is the ability of managing their stocks and the decrease is due to the
inability of managing their stocks including the changes in customer preferences as compared
to 2017. Lastly, the net profit margin has shown a 161% increase in the year 2017 whereas
the net profit margin has decreased by 77% in the F.Y 2018 because of the more settlement
charges and interest expenses. The following table is the margin analysis of Nordstrom Inc.
showing its growth percentage of gross profit margin, operating profit margin and net profit
margin.
The competitor “Nordstrom Inc.” of the Macy Company is showing gross profit
margin of 34.89 % in 2016 which is a decrease in the next two years 2017 and 2018. It shows
that the company is not much able as compared to its competitor “Macy’s Inc.” in earning
profit relative to its sales.
Secondly, operating profit of the competitor is also more as compared to the relative
years 2017 and 2018. The increase in operating profit of Macy’s Inc. is up to 141% and 132%
in 2017 and 2018 whereas for Nordstrom Inc., the profit growth percentage is 110.18 % and
96.11% which is relatively low.

5Financial Statement Analysis of Macy’s Inc.
Last is the net profit margin where the Nordstrom is better than the Macy’s
performance as there is constant growth in the profit of the business. Macy’s performance is
not good as the growth percentage is falling from 261% to 184 % in 2018.
Investment Decisions
In order to analyse the investment decisions the asset turnover ratio and the working
capital ratio have been taken into consideration.
The asset turnover ratio helps in the measuring of the efficiency of the assets of the
company for the purpose of generating the sales or revenue (Setiawan, 2015). Here, the asset
turnover ratio of Macy’s Inc. has been calculated by dividing net sales with total assets for
the financial year 2017 and 2018. The results have shown that for the year 2017 the asset
turnover ratio was 0.818 and for 2018 it was 0.842. This means that the company is efficient
in using its assets to make great sales in the consecutive years. Thus, there has been increase
in the ratio over these years which indicates that the company has become efficient in
generating sales and revenue as higher ratio is favoured (Harebottle, 2016). In other case, the
asset turnover ratio of Nordstrom is 1.288 and 1.299 in the respective years which is

6Financial Statement Analysis of Macy’s Inc.
increasing fairly showing the proper utilisation of assets to make sales. However, if compared
to the close competitor of Macy’s Inc. it can be seen that the asset turnover ratio is not up to
the mark for this company and is not efficient enough for generating their revenues (Gaur &
Kesavan, 2015). On the other hand, the working capital ratio of Macy’s Inc. is 1.350 for the
F.Y 2017 and 1.476 for F.Y 2018. The working capital ratio helps to measure the liquidity of
a business organization after evaluating the ability of the business to pay off its current
liabilities with current assets (Mathuva, 2015). Hence, the company is efficient in meeting its
current liabilities with current assets over these two years 2017 and 2018. In addition, if this
ratio is compared to its competitor performance then also the company is much better in their
performance as the working capital of Nordstrom is 1.070 and 1.065 in 2017 and 2018 which
is comparatively low than the Macy’s Inc. Therefore, it means Nordstrom is not efficient in
its current liabilities with current assets over these two years. The investment decision of
Macy’s Inc. is better compared to its competitor because the administrative and general
expenses of the company is increasing and the new strategic initiatives and technology made
by the company is making it strong to remain competent.
Financial Decisions
The financial decision has been analysed after taking into consideration the debt ratio
and the current ratio.
From the above table, it can be seen that the debt ratio of “Macy’s Inc. is 0.782 in
2017 and 0.707 in 2018. This ratio interprets that proportion of the assets of the company
which have been financed by debt. A higher ratio indicates risk for the company as it means it
has more liabilities than its assets (Jin, Yang & Yin, 2015). The decrease in the ratio shows
that the debt has mostly been funded by the assets indicating less risk. Debt ratio of
Nordstrom is 0.889 and 0.880 in 2017 and 2018. If the ratio of Macy’s Inc. is compared to the

7Financial Statement Analysis of Macy’s Inc.
Nordstrom Inc. it shows that company is well in maintaining its assets financed by debt as the
ratios of Nordstrom Inc. are comparatively high than the Macy’s Inc. The next determinant
for the financial decision is the current ratio which stood at 1.350 and 1.476 in 2017 and 2018
for Macy’s Inc. However, for Nordstrom this ratio is valued at 1.070 and 1.065 for the
respective years. This ratio presents how well the company is settling its current liabilities
against its current assets (Mun & Jang, 2015). Thus, Macy has enough current assets to meet
its current liabilities as compared to its competitor which is not well in settling its current
liabilities against its current assets.
Return Analysis
The analysis on return has been done after taking into consideration the return on
capital employed (ROCE) and return on equity (ROE).
The profitability and the efficiency of a company for the purpose of using is capital is
measured with the help of the return on capital employed. At the same time, it also helps the
investors to screen the suitable investment opportunities (James, 2015). In terms of Macy’s,
the ROCE ratio is 0.131 and 0.121 in 2017 and 2018 but for Nordstrom the ratio is 1.064 and
0.931 for the respective years which is reducing. Such, decrease in the ROCE indicates that
the company is not doing a better job in deploying the capital and at the same time it is not
employing its capital effectively for generating the value of the shareholders. Therefore,
Macy’s return analysis is not that good but it is much better than Nordstrom Inc. as the
company is using its capital properly and is well in raising the value of its shareholders as
compared to its competitor. The return on equity can also be termed as return on assets and
measures the efficiency of the company to use its assets in order to earn profit (Royer, 2019).
Here, the ROE of Macy has been calculated as 0.360 and 0.192 in 2017 and 2018 which is
low than the previous year whereas Nordstrom is having their ratio at 0.502 and 0.577 for the

8Financial Statement Analysis of Macy’s Inc.
respective years and is increasing also. In this case, the ratio of Nordstrom will be considered
good as there is an increase in their ratio. This is because the company is increasing its profit
earning without introducing as much capital. In addition, Macy’s Inc. is not introducing
much investments from its shareholders leading to become inefficient for generating profits.
(Dreżewski, Kruk & Makowka, 2018).
Conclusion and Recommendation
From the above discussion it can be concluded that there have been fluctuations in the
trend of sales and the sales of Macy’s Inc. and its competitor Nordstrom Inc. in the financial
years 2017 and 2018. There has been decrease in the profit margin of Macy as compared to
its competitor. On the other hand, after going through the financial and investment decisions
it has been found that the company is feasible to invest though there are certain loopholes
found in the ratios of the company but the company Macy’s Inc. is performing well
comparing with its competitor. Macy’s return analysis is not that good but it is much better
than Nordstrom Inc. as the company is using its capital properly and is well in raising the
value of its shareholders as compared to its competitor. The ROE ratio of Nordstrom will be
considered good as there is an increase in their ratio. This is because the company is
increasing its profit earning without introducing as much capital.

9Financial Statement Analysis of Macy’s Inc.
References
Dreżewski, R., Kruk, S., & Makowka, M. (2018). The evolutionary optimization of a
company’s return on equity factor: Towards the agent-based bio-inspired system
supporting corporate finance decisions. IEEE Access, 6, 51911-51930.
Fitzgerald-Mumford, M. J. (2018). Shells of the Stores They Once Were: Returning Vacant
Retail Property to Productive Use in the Midst of the Retail Apocalypse. Notre Dame
L. Rev., 94, 1797.
Gaur, V., & Kesavan, S. (2015). The effects of firm size and sales growth rate on inventory
turnover performance in the US retail sector. In Retail Supply Chain Management (pp.
25-52). Springer, Boston, MA.
Harebottle, J. L. (2016). Identifying earnings management using changes in asset turnover
and profit margin (Doctoral dissertation).
James, R. G. (2015). Firm-Specific Wage Elasticity and the Return to Capital. Available at
SSRN 2574981.
Jin, Z., Yang, H., & Yin, G. (2015). Optimal debt ratio and dividend payment strategies with
reinsurance. Insurance: Mathematics and Economics, 64, 351-363.
Macy's, Inc., (2020) Retrieved 13 March 2020, from https://www.macysinc.com/about
Mathuva, D. (2015). The Influence of working capital management components on corporate
profitability.
Mun, S. G., & Jang, S. S. (2015). Working capital, cash holding, and profitability of
restaurant firms. International Journal of Hospitality Management, 48, 1-11.

10Financial Statement Analysis of Macy’s Inc.
Royer, J. S. (2019). Measuring the cost of capital in cooperative
businesses. Agribusiness, 35(2), 249-264.
Setiawan, E. (2015). Pengaruh Current Ratio, Inventory Turnover, Debt to Equity Ratio,
Total Asset Turnover, Sales dan Firm Size terhadap ROA pada Perusahaan Foodand
Beverage yang terdaftar di Bursa Efek Indonesia (BEI) Periode 2010-2013. Riau:
Universitas Maritim Raja Ali Haji, Fakultas Ekonomi, Jurusan Akuntansi.

11Financial Statement Analysis of Macy’s Inc.
Appendices