Menu

Kmart Analysis

0 Comment

Kmart deals in a wide range of retail products. The company principally provides the grocery items on its retail stores along with other consumer products such as women’s and kids apparels, fashion clothing, gifts, toys, baby and kids beddings, furniture, nursery products, jewelry, electronics, home appliances, fragrances, personal care items and sports, leisure and fitness goods etc (Kmart Home, n.d.)
Kmart’s business operations fall under discount retailing industry. It confronts with overwhelming competition in the industry from the significant retail giants such as Wal-Mart, Target stores, Kohl’s and J.C. Penney etc.
Kmart has shown a comeback in the industry after the bankruptcy with a vision to deliver value to its customers and shareholders in an identical manner. It aims for constant expansion with a view to advance in terms of sale and profitability records, to enhance the efficacy and alleviate the costs, to strengthen and elevate the utilization of assets towards increasing profits etc (Corporate History, n.d.)
The following chart depicts a snapshot of K-mart’s financial ratios (Kmart Corporation, n.d.) compared to the discount retailing industry average (Retail (Department amp. Discount) Industry, n.d.) along with two of its competitors i.e., Wal-Mart (Ratios for Wal-Mart, n.d.) and Target (Ratios for Target, n.d.), so as to provide a better insight into the company’s financial position and performance with respect to that of its industry and competitors:
Kmart
Industry
Wal-Mart
Target
Quick Ratio
2.0
0.26
0.13
0.89
Current Ratio
3.6
1.17
0.89
1.50
Debt to Equity
0.93
0.55
0.54
0.70
Gross Margin
25.9%
27.50%
23.17%
32.15%
Net Profit Margin
5.6%
3.80%
3.49%
4.58%
Return On Assets
10.1%
7.43%
8.32%
7.30%
Cash Conversion Cycle
67 days
39 days
14 days
39 days
An examination of the above chart straightens out a fine line between Kmart, its major competitors and the whole discount retail industry. The further in-depth interpretation and analysis of the above presented ratios is provided below to compare Kmart’s financial position and performance with its competitors and other companies in the same industry:
Current Ratio:
The current ratio reflects the liquidity position of a company in terms of a comparison of its current assets and current liabilities. Kmart’s current ratio is 3.6:1, which means that the company keeps $3.6 worth of liquid assets against every $1 worth of current liabilities. The current ratio of Kmart is much higher than that of the discount retail industry as well as Wal-Mart and Target Corporation individually. Apart from showing a sound liquidity position of the company, it emphasizes the fact that much of the company’s current assets are lying idle without being invested further.
Quick Ratio:
An investigation of the above ratio comparison reveals that the Kmart Corporation’s quick ratio is much higher than that of its industry and competitors. Kmart’s quick ratio is 2.0, which shows that Kmart is much capable to pay off its short-term debts and liabilities after keeping aside the inventory than all the other companies in the industry. The difference between the current and quick ratios explicit the quantity of stock held by company, which is about 55% of the total current assets for Kmart.
Debt to