Nordstrom Financial Analysis Paper

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FINANCIAL STATEMENT RATIO ANALYSIS CASE STUDY

NORDSTROM, INC.

Business Description

        The company was founded in 1901 as a retail shoe business in Seattle. Nordstrom later incorporated in Washington State in 1946 and became a one of the leading fashion specialty retailers based in the U.S. As of March 14, 2016, company operates 323 U.S. stores located in 39 states and the ecommerce business through Nordstrom.com,   Nordstromrack.com, and TrunkClub.com. And also operates three full-line stores in Canada.

The company has two reportable segments, which include retail and credit. Retail segment includes 118 Nordstrom branded full-line stores in the U.S. and online store. The company offers an extensive selection of high-quality brand-name and private label merchandise focused on apparel, shoes, cosmetics and accessories. Through the Company’s credit segment, the customers can access a variety of payment products and services which include a Nordstrom-branded private label card, two Nordstrom branded Visa credit cards and a debit card for Nordstrom purchases.

The company operates in a highly competitive business environment with other national, regional, local and online retailers that carry similar products which includes department stores, specialty stores, off price stores, boutiques and internet businesses. The company believes that key to competing in the industry is to provide great customer service and customer experience in stores and online.

Financial Statements and Ratio Analysis

Financial statements are a collection of reports about a company’s financial results, financial condition, and cash flows. These statements are used to determine the ability of a business to generate cash, and the sources and uses of that cash. They also determine whether the company has the capability to pay back its debts.

        Ratio analysis are quantitative analysis of information contained in a company’s financial statements. Ratio analysis are based on line items in financial statements the ratios of one item or a combination of items calculated. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios over time are analyzed to check whether they are improving or deteriorating. Ratios are also compared across different companies in the same sector to see how they perform, and to get an idea of comparative valuations.

There are numerous financial ratios, which includes the current ratio, return on equity, the debt-equity ratio, the dividend payout ratio and the price/earnings (P/E) ratio. Successful companies generally have solid ratios in all areas.

Liquidity Ratios

        Liquidity ratios measure the company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio. Current liabilities are analyzed in relation to liquid assets to evaluate the coverage of short-term debts in an emergency. Liquidity ratios are most useful when they are used in comparative form. Comparing previous time periods to current operations allows analysts to track changes in the business. In general, a higher liquidity ratio indicates that a company is more liquid and has better coverage of outstanding debts.