Kohls Corporation and Dillards Inc Essay

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Kohl’s Corporation and Dillard’s, Inc. — Financial Statement Analysis EXCERPTED WITH PERMISSION FROM CASES IN FINANCIAL REPORTING SEVENTH EDITION ISBN: 978-1-934319-79-6 ELLEN ENGEL D. ERIC HIRST MARY LEA MCANALLY © Copyright 2012 by Cambridge Business Publishers, LLC. All rights reserved. No part of this publication may be reproduced in any form for any purpose without the written permission of the publisher. This document is authorized for use by michelle jeffalone, from 9/1/2014 to 12/31/2014, in the course: Accounting for Managers, University of Massachusetts - Boston. Any unauthorized use or reproduction of this document is strictly prohibited. Kohl’s Corporation and Dillard’s Inc.— Financial Statement Analysis Kohl’s…show more content…
ROE = NI EBT × × EBT EBIT   Cost of taxes Cost of debt Average Total assets Sales EBIT × × Sales Average Total assets Average Stockholders' equity       Operating Asset turnover profit   Capital structure leverage Operating Return on Assets Where: • NI is Net income reported on the income statement. • EBT is earnings before income tax expense. • EBIT is earnings before interest expense, net, and income tax expense. Interest expense includes any costs for debt issuances or repurchases and is net of interest income on financial assets. • Sales are reported on the income statement. • Total assets are reported on the balance sheet. • Stockholders’ equity is reported on the balance sheet and excludes any reported minority interest or non-controlling interest. Note that once the common terms cancel in the second equation (the DuPont model), the right-hand side of the ROE equation collapses down to the first equation: Net income divided by the firm’s Stockholders’ equity. Reading from left to right in the second equation, the first right-hand side ratio represents the fraction of pretax earnings that the shareholders keep. One minus that ratio is the average tax rate so the ratio decreases as the tax rate goes up. The second ratio represents the fraction of EBIT (i.e., operating profit) that the firm keeps after financing costs so the ratio decreases as the net cost of debt

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