The following ration for Kohl\' s corporation and its competitor Dillard\'s inc
ID: 2443705 • Letter: T
Question
The following ration for Kohl' s corporation and its competitor Dillard's inc were obtained from reuters.com/finance. Compare the two companies based on the following ratio.Ratio Kohls Dilards
Debt to assets 0.24 0.35
Asset turnover ratio 1.50 1.39
Net Profit margin 5.4% -3.4%
Requirement:
1) Whichh company appears to rely more on Debt for financing? Describe the ratio that you used to reach this decision and explain what the ratio means.
2) Which company appears to use its assets more efficiently? Describe the ratio that you used to reach this decision and explain what the ratio means.
3) Which company appears to better control its expenses? Describe the ratio that you used to reach this decision and explain what the ration means.
Explanation / Answer
1) Dillards relies more on debt for financing. Think of it this way: for every 1 dollar in assets that Kohls has, 24 cents of that dollar is borrowed, Dillards borrows .35 of every dollar. Or, you can convert these into debt equity ratio: .24/(1-.24) (notice that 1-.24 is equity) .35/(1-.35) Kohls = .316 Dillards = .538 2) Kohls seems to use its assets more efficiently. Kohls turn over its assets (think inventory) 1.5 times per year, or every 243 days. Dillards, on the other hand, turns over its assets 1.39 times per year, or every 262 days. Think of it this way: You and your friend have a race to see who can sell the most. Assuming that you both have an average of $100 in assets to sell, you would sell $150 worth of assets in one year, while your friend would only sell $139. 3) Kohls is in a much better position than Dillards. Kohls has less debt (D/A ratio) and is in a better position to raise capital through its daily operations (Asset turnover). Dillards relies on debt to a greater extent and is in a less favorable position to raise capital to pay its obligations.
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