Finance Paper

Provide an evaluation of the financial performance of TJX compared with Macy’s for the FY2020. Below are spreadsheets for each company. For both you will fill in the yellow cells on the Ratios tab and use these results to make your comparisons. For TJX only, you will complete the Valuation tab. You can complete a single year and copy over to the remaining periods. Do not input hard numbers. Instead reference the cells on the income statement and balance sheet. Remember to use an average of the balance sheet when you have balance sheet and income statement items in the same ratio. If it’s just balance sheet, like the Current Ratio or Debt-to-Capital, just use year-end.
Begin your written report with a bullet point Executive Summary that highlights the group’s overall findings. Next provide some background on each of the company’s strategies, business models and recent operating decisions, as well as that of recent trends in the retail industry and economy as they pertain to your analysis. Obviously, the companies operate in different segments of the retail space so include the impact of that difference throughout your work. You can find a discussion of these background factors in the research documents provided below–one from Bloomberg Intelligence and the other from JP Morgan for each company, as well as any independent research you choose to consider (cite it, I don’t care about citation format). For further information you could access the Management Discussion and Analysis section of each company’s FY2020 10-k filing on the SEC’s website. You could also listen to the quarterly conference call with investment analysts on the Investor Relations areas of the websites.

Next you will write a detailed comparison in each of the following areas of performance: Profitability, Turnovers (Capital management), Liquidity, Solvency, and Market Multiples. Treat each as its own section of the report. Note that these areas often intersect so some redundancy across sections is expected (for example. Turnovers and Liquidity impact profit, risk in one area can be offset in another, etc.). Include some of the information from your Background section in each of these as you deem relevant. Don’t worry about redundancy across the sections. It’s expected. You can weave tables into your discussion or include them in an appendix behind the written report. I’m not picky about formatting as long as it shows the care of consistency.

I recommend you review the week 2 financial analysis video example prior to writing. Remember to start your analysis with a comparison of EVA spread and the ROIC which drives it. View the rest of your analysis as explaining the differences in ROIC, as discussed throughout the videos. Remember when discussing ROIC to intersect Net Operating Margin with Capital Turnover, then describe what more detailed results drive each of these two numbers. Begin each section with the biggest picture result, then drill down from there. Use the tell them what you’re going to say, say it, and tell them again approach. In other words, it can be helpful to begin and end each part with a broader summary statement that backs up from the detail.

Note that TJX began accounting for short-term (operating) leases as capital leases in FY2020. This means they treated that real estate as owned assets with associated debt obligations for the lease payments. This added $9 billion in PP&E and Debt (all the short-term debt is from the leases) to the balance sheet in FY2020. Therefore, you’ll see a big drop in ROIC and an increase in debt. You aren’t required to discuss the trends, but to the extent you find it helpful, you can back the $9 billion out of PP&E and Debt to make FY2020 comparable to prior periods.

When discussing the Market Multiples comparison, relate the results back to what we said in the videos determine these. That is, returns on capital, growth (growth rates are provided on a separate tab) and risk. You will have already discussed returns and risk above.

When making comparisons, be sure in each case to provide the associated numbers that support your statements. Distinguish between percentages and multiples. The difference is 100-fold (i.e. if the Capital Turnover ratio is 1.0x, Sales is equal to Capital, not 1% of Capital). Use either an x or “times” to denote a multiple.

The final written section will provide a description of your multiples valuation of TJX that you performed on the valuation tab in the spreadsheet. You will provide two estimates–one using the EV/EBITDA multiple and the other using the P/E ratio. Expect them to be different. I like this about finance. No, I love this about finance. Note that we will use the consensus FY2022 profit forecasts provided by Bloomberg since the FY 2021 results are less representative of long-term expectations. Describe how you arrived at the two estimates and compare them to the actual stock price at the time of your writing. Find a chart of the one-year stock price history and note in the report whether your estimates fit within this range. Note how broad the range is in percentage terms in such a short space of time. That’s why they’re called estimates. You have already summarized your findings in the Executive Summary, so a conclusion section is not required.

LAYOUT of the paper:

Sections of the report:

1. Executive Summary

2. Background discussion of the companies and industry

3. Financial performance comparison

a. Profitability

b. Turnovers

c. Liquidity

d. Solvency

e. Market Multiples

4. TJX valuation