The company is an integrated retailer that enables shoppers to use both physical and online shopping to meet clients’ shopping needs. The headquarters is in Hoffman, and all the retail stores are located within the United States of America. This report uses financial ratios to provide a general picture of the financial status of the company.
Profitability of the Company
The gross profit margin is one of the main metrics that is used to gauge the company’s ability to transform sales into profit. It indicates the amount of net income realizable out of one dollar of sales revenue.
Gross profit margin = net income after taxes/sales Year 2013 = -2.33
(Morningstar 1)
The company has not been able to raise any net profit in the last five years, and the inefficiency has been increasing over the last four years. The consecutive loss generated is attributable to high operating cost. Moreover, the ratio gives an increasing inefficient trend. Thus, the company should adopt various cost-cutting measures to change the company’s fortunes.
Liquidity Ratios
These ratios are used to show whether a company will be able to meet all its current obligations without necessarily arranging for short-term financing. A company that cannot meet its current obligation may find it difficult to acquire inventory in credit. The main liquidity ratio is the current ratio.
Current ratio = current assets/ current liabilities
(Morningstar 1)
It seems that the company was able to meet its current obligations in all the years except in 2015 when the ratio fell below one. A ratio of one and above for a retailer company is adequate because its inventory is easily convertible into sales.
Efficiency Ratios
The most common efficiency ratio is inventory turnover. The metric measures the company’s ability to convert inventory into sales. Inventory turnover = cost of goods sold/ average inventory
Industrial average = 4.5
(Morningstar 1)
In all the years considered the turnover ratio falls below the industrial average. Therefore, the management should adopt advertising and marketing strategies that can grow its customer base.
The company has performed poorly in many of the ratios considered. The management should adopt cost-cutting measures to control its operating costs and improve overall organization’s efficiency. Moreover, it should enhance its marketing and advertising strategies to grow its market share.
Work cited
Morningstar. "Sears Holdings Corp." Income Statement for Sears Holdings Corp (SHLD) from
Morningstar.com. N.p., 2017. http://financials.morningstar.com/ratios/r.html?t=SHLD. 12 Jan. 2017.
