Description
Using the analytical tools each of you will learn, each student will prepare an analysis of a public company. The company will be evaluated from the perspective of both fixed income securities (e.g., would you buy the bonds?) and equity securities (e.g., would you buy or sell the stock) in the medium to long-term?
Approaches to the analysis should include:
Current state of the financial health of the company
Trends in the financial health over recent years and potentially into the future
Comparison of the subject company with competitors and/or industry sector
Analysis of the subject company’s industry sector
o Relative strengths or weaknesses
o Factors affecting the industry such as product, technical innovation, regulation, economic cycles, etc.
Assessing the company’s position within the industry context
o Is it a leader?
o Does it have a clear advantage vis a vis other industry participants?
o Is it subject to extreme competition or pricing pressure?
The company chosen is at your discretion, but should not be so complex or one for which the information is not readily available that makes it more difficult than necessary. Students should pick a subject company outside his/her usual frame of reference. For example, if a student is employed in the technology sector, he/she should choose a company in another industry, such as food. In my experience, retail companies make the best selection.
Explanation & Answer
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Running Head: MACY’S COMPANY ANALYSIS
Macy’s Company Analysis
Name
Institution
Date
1
MACY’S COMPANY ANALYSIS
2
Introduction
Macy’s stocks, as well as fixed securities, made use the better part of late 2018 and
early 2019. Macy's is a departmental store with over 750 stores worldwide. Rowland Hussey
Macy founded the company in 1858. Since then, the company has grown into the corporation;
it is today by maintaining good performance. However, recently the company's cash flow has
been unstable making it very hard for investors to decide on whether to invest in the company.
This paper, therefore, presents an analysis of Macy's performance in the retail industry. The paper particularly evaluates the company's financial health using ratio analysis. Secondly, this paper presents the retail industry analysis and also analyses Macy's position in this
industry. Finally, a recommendation is made to potential and current Macy's investors on
whether to buy or not to buy May's stocks or bonds.
Financial Health
A company’s financial health is a fundamental factor to consider when making investment decisions. The financial health of a company is measured by its profitability, liquidity,
leverage, and efficiency.
Profitability
Macy's profitability can be best analyzed using two commonly used profitability ratios.
These ratios are net profit margin and return on equity ratio. Net profit ratio shows the net profit
generated from the company’s total sales. Macy’s net profit ratio for the financial year 2018
was 6.18%, an increase from the previous year ratio of 2.37%. This increase in the net profit
margin indicates a rise in the company's profitability. Despite the decrease in revenue generated
in 2018 compared to 2017, the company still made a higher net income in 2018 compared to
2017. In addition to the profit margin, we can also use the return on equity ratio to analyze
MACY’S COMPANY ANALYSIS
3
Macy's profitability. From Appendix 1, it is evident that the return on equity also increased
from 14.13% in 2017 to 27.08% in 2018. This increase in ROE indicates a rise in profitability.
Moreover, the company's profitability ratios are higher than those of its main competitors in the industry indicating that Macy's performance in 2018 was good. In appendix 2, it is
also clear that Macy's ROE is higher than the industry's ROE of 17.61. Macy's main competitors Costco and Big Lots Inc...
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