Dupont Analysis on Jc Penney and Nordstrom
Dupont Analysis
J.C. Penney 's, Inc. versus Nordstrom, Inc. | Fiscal years 2005 and 2004
Refer to Figure 1.
During fiscal year 2005, both J.C. Penney 's Inc. ("Penney 's) and Nordstrom, Inc.
("Nordstrom") provided similar and high returns on their shareholder investments, at
27% and 26%, respectively. Both companies ' 2005 returns on equity ("ROE 's") are up from prior year. While Nordstrom posted a significant increase in ROE by 20% over prior year, Penney 's ROE is up 152% over its 2004 ROE.
While it is notable that both companies have strong 2005 ROE 's and have increased their
ROE 's since 2004, there is a very large variance in ROE growth between the two companies. This suggests that although the 2005 ROE 's are similar, the companies must have taken different paths to achieve these returns. Overall differences in net income reflect that Nordstrom saw its earnings driven by performance on continued operations, while Penney 's achieved its result by showing earnings from discontinued operations.
Also notable is that Penney 's reduced its owners ' equity from 2004 to 2005 while
Nordstrom increased its owners ' equity.
Further analysis using the Dupont Model reveals that Nordstrom managed its assets more efficiently than Penney 's in 2005 and 2004 as shown by its higher return on assets
("ROA") (11.19% vs. 8.73% for 2005 | 8.56% vs. 3.71% for 2004). Penney 's also relied more heavily on leverage than did Nordstrom in both years, with a higher capitalization ratio (3.11% vs. 2.35% for 2005 | 2.91 vs. 2.57 for 2004).
Nordstrom 's advantage in ROA was driven primarily by its higher asset turnover when compared to Penney 's (1.57 times vs. 1.51 times in 2005 | 1.55 times vs. 1.28 times in
2004). Asset turn in general was driven in both years by Nordstrom 's much higher inventory turnover (5.11 times vs. 3.55 times for 2005 | 4.97 vs. 3.54 for 2004). The effect on ROA was offset in 2005 by Penney 's reduction of cash balances primarily to
J.C. Penney 's, Inc. versus Nordstrom, Inc. | Fiscal years 2005 and 2004
Refer to Figure 1.
During fiscal year 2005, both J.C. Penney 's Inc. ("Penney 's) and Nordstrom, Inc.
("Nordstrom") provided similar and high returns on their shareholder investments, at
27% and 26%, respectively. Both companies ' 2005 returns on equity ("ROE 's") are up from prior year. While Nordstrom posted a significant increase in ROE by 20% over prior year, Penney 's ROE is up 152% over its 2004 ROE.
While it is notable that both companies have strong 2005 ROE 's and have increased their
ROE 's since 2004, there is a very large variance in ROE growth between the two companies. This suggests that although the 2005 ROE 's are similar, the companies must have taken different paths to achieve these returns. Overall differences in net income reflect that Nordstrom saw its earnings driven by performance on continued operations, while Penney 's achieved its result by showing earnings from discontinued operations.
Also notable is that Penney 's reduced its owners ' equity from 2004 to 2005 while
Nordstrom increased its owners ' equity.
Further analysis using the Dupont Model reveals that Nordstrom managed its assets more efficiently than Penney 's in 2005 and 2004 as shown by its higher return on assets
("ROA") (11.19% vs. 8.73% for 2005 | 8.56% vs. 3.71% for 2004). Penney 's also relied more heavily on leverage than did Nordstrom in both years, with a higher capitalization ratio (3.11% vs. 2.35% for 2005 | 2.91 vs. 2.57 for 2004).
Nordstrom 's advantage in ROA was driven primarily by its higher asset turnover when compared to Penney 's (1.57 times vs. 1.51 times in 2005 | 1.55 times vs. 1.28 times in
2004). Asset turn in general was driven in both years by Nordstrom 's much higher inventory turnover (5.11 times vs. 3.55 times for 2005 | 4.97 vs. 3.54 for 2004). The effect on ROA was offset in 2005 by Penney 's reduction of cash balances primarily to