Chapter 12, Problem 1CFSAP

Comprehensive Financial Statement Analysis Project

The objective of this exercise is to develop your ability to perform a comprehensive analysis on a set of financial statements. Obtain a copy of the 2016 annual report (Form 10-K) of Kohl’s Corporation (year ended January 28, 2017) from www.sec.gov. (Use “Kohl’s” in the company search box.)

Requirement 1: Compile basic information (provide sources for your answers)

a. Using a site such as Yahoo! Finance or Hoover’s Inc., research the discount variety store industry. List two competitors of Kohl’s Corporation.

b. Describe Kohl’s business and risk factors.

c. List three Kohl’s brands.

d. At January 28, 2017, what is Kohl’s largest asset? Largest liability?

e. At January 28, 2017, how many shares of common stock are authorized? Issued? Outstanding?

f. Did Kohl’s repurchase any shares of common stock during its fiscal year ended January 28, 2017?

g. When does Kohl’s record revenue?

h. What inventory method does Kohl’s use?

i. Does Kohl’s have any business interests in foreign countries? Explain your answer.

Requirement 2: Evaluate profitability

a. Using information you have learned in the text and elsewhere, evaluate Kohl’s profitability for 2016 compared with 2015. (Remember that the 2016 year-end is January 28, 2017.) In your analysis, you should calculate the following ratios and then comment on what those ratios indicate. Note: You will have to look up the 10-K for 2015 to obtain total assets and stockholders’ equity for 2014. See www.sec.gov.

a. Rate of return on sales

b. Asset turnover

c. Return on assets (DuPont model)

d. Leverage ratio

e. Return on equity (DuPont model)

f. Gross margin percentage

g. Earnings per share (show computation)

Requirement 3: Evaluate turnover

Evaluate Kohl’s ability to sell inventory and pay debts during 2016 and 2015. Please note that the company does not hold traditional accounts receivable because it sells all of its receivables to Capital One. which is a credit card company. Therefore. It is impossible to calculate accounts receivable turnover and days sales to collection. However, in your analysis, you should calculate the following ratios and then comment on what those ratios indicate. Because the 2016 annual report contains only the balance sheets for 2016 and 2015, you will need to look up Kohl’s 1 O-K for 2015 for information about 2014 inventory and accounts payable.

a. Inventory turnover and days’ inventory outstanding (DIO)

b. Accounts payable turnover and days’ payable outstanding (DPO)

c. Cash conversion cycle (DIO-DPO)

d. Current ratio

e. Quick (acid-test) ratio

f. Debt ratio

g. Times interest earned

Requirement 4: Perform other financial analysis

a. Calculate common-size percentages for sales, gross profit, operating income, and net income for 2013-2016. Comment on your results.

b. Find the selected financial data in the 10-K where Kohl’s reports selected information since 2013. Calculate trend percentages. using 2013 as the base year. for total revenues and net earnings. Comment on your results.

Requirement 5: Evaluate Kohl’s Corporation stock as an investment

a. What was the closing market price of Kohl’s Corporation stock on January 30, 2017, the next trading day after the balance-sheet date of January 28, 2017?

b. Calculate the price-earnings ratio using your EPS calculation and the market price you just determined.