Is Horizontal Analysis Sears Holdings Corporation (SHLD) Per ✓ Solved

Is Horizontal Analysis Sears Holdings Corporation SHLD Per

Is Horizontal Analysis Sears Holdings Corporation (SHLD) Per

Perform a horizontal analysis of Sears Holdings Corporation (SHLD) for the period ending from 1-Feb-14 to 31-Jan-15 and from 2-Feb-13 to 1-Feb-14. Present findings for total revenue, cost of revenue, gross profit, operating expenses, operating income, net income, and any other relevant financial metrics. Repeat with a vertical analysis of the financial data for the period ending 31-Jan-15, 1-Feb-14, and 2-Feb-13. Include findings for assets, liabilities, and stockholders' equity.

Paper For Above Instructions

Introduction

This paper presents a comprehensive horizontal and vertical analysis of Sears Holdings Corporation (SHLD) over specified financial periods. Understanding the financial health and operational performance of a company through these analyses helps investors make informed decisions. Given the challenges faced by Sears in the retail sector, this analysis will highlight critical financial metrics and trends to aid stakeholders in assessing the company's viability and strategic options.

Horizontal Analysis of Sears Holdings Corporation

Period Ending 1-Feb-14 to 31-Jan-15 and 2-Feb-13 to 1-Feb-14

The horizontal analysis allows us to assess the growth or reduction over the selected periods. Notably, total revenue showed a decline of 13.79% from 1-Feb-14 to 31-Jan-15, and a 9.20% decrease from 2-Feb-13 to 1-Feb-14. This consistent downward trend indicates struggles in sales, likely due to increased competition and changing consumer behaviors in retail.

Other major metrics such as the cost of revenue also reflected declining performance, with a drop of 12.34% in the most recent year and 6.50% the previous year. Operating expenses, including Selling General and Administrative (SG&A) costs, also increased, indicating that while sales were decreasing, the company maintained a high expense level, further compressing margins.

Operating income showed significant volatility, experiencing a drastic decrease of 60.84% in the most recent analysis, signifying operational challenges that left the company vulnerable. Patterns in net income follow a similar trend. The analysis for these periods indicates a worrying trajectory for SHLD, suggesting a need for strategic intervention to regain profitability.

Vertical Analysis of Sears Holdings Corporation

The vertical analysis provides insights into how line items are valued relative to each other within the timeframe of 31-Jan-15, 1-Feb-14, and 2-Feb-13.

In 31-Jan-15, 100% of total revenue aligns with the established costs and expenses. The analysis found that 77.09% of total revenue went to covering the cost of sales, with a gross profit margin of only 22.91%. This decreasing margin indicates increasing inefficiencies in cost management that need addressing.

Operating expenses accounted for 28.41% of total revenue, with SG&A costs maintaining high percentages relative to sales. The growth in the SG&A costs combined with reducing revenues suggests the need for a restructuring of operational efficiency to stabilize the financial health of the entity.

Financial Ratios and Metrics

Ratios derived from the financials also provide useful insights. The current ratio of 0.96 in 31-Jan-15 indicates liquidity issues as it's below 1, advancing concerns about the company's capability to meet its short-term liabilities. Furthermore, the debt ratio climbing to 1.07 indicates that the firm’s liabilities exceed its assets, marking a significant financial risk.

Profitability indicators such as the operating margin at -4.83% for this period suggest operational losses, which reflect poorly on the company's ability to perform sustainably in the competitive marketplace.

Econometric Context and Future Assumptions

Within the current state of the retail market, which is shifting towards online commerce, Sears has experienced pressing challenges. Competitors leveraging technology, e-commerce models, and reduced physical footprints could be assumed to take market share from traditional retailers like Sears. Therefore, moving forward, a comprehensive strategy integrating online retail effectiveness is assumed to be needed for any positive transformation.

Conclusion and Recommendations

Given the significant downturn in revenues and struggles indicated through both horizontal and vertical analyses, it is clear that SHLD faces major operational challenges. Strategic measures must be undertaken to reduce expenses, stabilize revenues, and enhance the engagement of consumers in a shifting retail landscape. It is advisable for investors to approach with caution and consider diversifying assets rather than investing heavily in a company that currently shows potential instability.

References

  • Yahoo Finance. (2015). Sears Holdings Corporation Financial Statements.
  • Investopedia. (2023). Horizontal Analysis. Retrieved from [website]
  • Investopedia. (2023). Vertical Analysis. Retrieved from [website]
  • MarketWatch. (2023). Sears Holdings Corporation Profile. Retrieved from [website]
  • Mergent Online. (2023). Financial Statements Analysis for Sears Holdings Corporation. Retrieved from [website]
  • SEC Filings. (2023). Annual Reports for Sears Holdings Corporation.
  • Financial Times. (2023). Analysis of Retail Market Trends. Retrieved from [website]
  • The Wall Street Journal. (2023). Current Challenges in Retail Sector. Retrieved from [website]
  • Bloomberg. (2023). Financial Ratios & Metrics Guide.
  • Zacks Investment Research. (2023). Investment Guidance on Retail Stocks.

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