What does the data in Exhibit 2 reveal about the financial situation of Nordstro

Question

What does the data in Exhibit 2 reveal about the financial situation of Nordstrom? Nordstrom Ratio Analysis 2013 2012 net sales 11762 10497 credit card revenue 386 380 total revenue 12148 10877 cost of sales and related buying and occupancy cost -7432 -6592 selling, general and administrative expense retail -3166 -2807 credit -205 -229 earning before interest and taxes 1345 1249 interest expense, net -160 -130 earing before income taxes 1185 1119 income tax expense -450 -436 net earnings 735 683

Explanation / Answer

% increase in net sales = (11762-10497)/10497 = 12.05%
% increase in credit card sales = (386-380)/380 = 1.58%
% increase in the total sales = (12148 - 10877)/10877 = 11.69%
% increase in cost of sales and other costs = (7432-6592)/6592 = 12.74%
% increase in selling, admin and general expenses = (3166+205 - 2807 - 229)/(2807+229) = 11.03%

Regarding the company, the net sales as well as total sales have increased by 12.05% and 11.69%, respectively, it is a good development for the company that it has performed better than the last year (2012). Besides, less reliance on credit card sales in 2013 is also good as it only increases by 1.58%. Though, the cost of goods sold, has also increased by 12.74% and it is higher than the increase in net sales and total sales. It means that company has to think about the increased level of cost that decreases the efficiency level of the operation.
Though, it is heartening that selling, admin and general expenses only increase, by 11.03% that shows the increase in efficiency in this component.

So, the overall financial position is good, that is also reflected by the increased level of net earnings, but the efficiency level of the cost of goods sold expenses has to be improved. Besides, the company has increased the exposure to the debt, shown by the increased level of interest payment. It has to be monitored and reduced.

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