•Examine common debt and equity securities, and analyse the relative risks and returns associated with each.
•Analyse how the securities business works through stockbrokers and investment bankers using the physical exchanges, network exchanges, and OTC markets.
•Perform and interpret basic security analyses using indexes, averages, and various technical methods, as well as compounding, discounting, and forecasting.
•Propose ways to apply various strategies in the management of financial investment portfolios in order to optimize profits (and minimize taxes) within acceptable risks.
•Find and utilize sources of pertinent investing information on a company, its industry, the economy as a whole, and the international environment to analyse investment potential.
•Examine the differences between various investments such as options, convertibles, warrants, rights, and commodities.
•Illustrate how to use hybrid and derivative instruments such as convertibles, warrants, rights, options, and futures contracts in investment strategies.
•Use technology and information resources to research issues in investments.
•Write clearly and concisely about investments using proper writing mechanics
Sears, Roebuck & Company (Sears) was established in 1893 and begun its business activities as a catalog business. Its emergence from its humble beginnings to a multinational organization makes it a case sturdy and the basis of my selection in that it can be used as an example to encourage and motivate young entrepreneurs that it’s possible to work hard and achieve outstanding performance and financial stability. (Drucker, 1999) In 1989, Sears was the largest retailer in the US after out staging Wal-Mart and other large departmental stores. Sears has a market capitalization of $4.27 Billion and a turnover of $36.19 Billion for the year 2013 while the Earnings per Share for the same period was -12.87. The shares for Sears currently trade at $40.14 while its beta stands at 3.1. In the last seven years, the price of the Sears stocks fluctuated between $31 and $125 between 2008 and 2014. (Vance, 2003)
Sears Share Prices Between the Years 2009 – 2014 (First quarter)
The average share price for the years 2009, 2010, 2011. 2012, 2013 and part of 2014 were 65.61, 83.28, 70.67, 54.66 and 50.28 respectively. The best period for Sears in the last five years was in month May the year 2010 when its shares rose to 125.42 while its worst period was in the month of December 2008 when the shares dropped to 31.6.
The share prices of Sears have shown a decreasing trend since the year 2009.
Sears Share Price Trend analysis in Percentage
|Open||High||Low||Close||Avg Vol||Adj Close*||AvG Trend|
The share prices of Sears increased in value in the year 2009 by 27%. In the year 2010 it lost an average of 15% of its value while in the year 2012 it lost an average of 22,8% of its value. In 2013 its value decreased further by -7.6 while in the first quarter of 2014 its value dropped by another 15.2%.
Compared to the NASDAQ, the shares maintained a sterling performance between the years 2010 and 2011 but from 2012 through out to 2014 Sears shares operated below the NASDAQ market index. The performance of its shares compared to Dow Jones and S & P remained the same.
The Shares of Sears Performance Compared to Dow Jones, NASDAQ and S&P
Between January 2010 and January 2014
The current ratios of Sears indicate that the liquid assets ratios to the current liabilities are below the standard or minimum requirements of 2:1. The liquid assets should be twice the current assets. The ratios of Sears are between 1.3 and 1.09 for the whole five year period. Between the years 2010 to 2014, the ratios were 1.3, 1.34, 1.11, 1.1 and 1.09 respectively. None of the ratios bordered the required 2:1. The quick ratio minimum ratio should be 1:1. The current asset less the inventory divided by the current liabilities should equal to 1:1. Sears quick ratios for the years between 2010 – 2014 were 0.31, 0.3, 0.2, 0.2 and 0.24 respectively.
The inventory turnover ratios for the period 2010 to 2014 were 3.71, 3.67, 3.97, 4.14 and 4 respectively. These ratios shows how many times the inventory turns in a year in order to generate revenue. A higher ratio indicates better efficiency in the management of stock. For example in the year 2010, the average stocks turned 3.71 times in that year. (Lahiff, 2014)
|Current Ratio||Total Current Assets/Total current liabilities||1.30||1.34||1.11||1.10||1.09|
|Quick Ratio||TT Current Assets – inventories /TT current assets||0.31||0.30||0.20||0.20||0.24|
|Times interest earned||EBIT/Annual Interest Expense||5.92||4.33||0.66||-0.15||-2.03|
|Inventory Turnover||Cost of goods sold/Avg inventory||3.71||3.67||3.97||4.14||4.00|
|Asset turnover||Sales/Average total assets||1.79||1.87||2.04||2.12||1.98|
|Debt to total Asset||Debt/Assets||0.07||0.10||0.10||0.10||0.15|
|Profit margin on sale||GP/sales||0.26||0.25||0.24||0.24||0.22|
|R.R return on assets||EAT/Total Assets||0.01||0.01||-0.15||-0.05||-0.06|
|Earnings per share||Profit after taxes-pref div)/No. of com shares outstanding||1.99||1.09||-29.12||-(8.78)||-(12.9)|
The asset turnover in 2010 and 2011 were 1.79 and 1.87 respectively while the rest of the years between 2012 and 2014 (Quarter 1) the asset turnover was 2.04, 2.12 and 1.98 respectively. This ratio reveals the rate of return for each dollar invested in the business. For example in the year 2010 the assets of Sears generated 1.79 dollars for every dollar invested in Sears.
The Earnings Per Share for Sears shares were 1.99, 1.09, 29.12, -8.78 and -12.9 for the years 2010, 2011, 2012, 2013 and 2014 respectively.
The investor who would most likely be interested in the shares of Sears is a Risk prone investor and one who is aggressive. Risk averse investors prefer investing less risky stocks which offer relatively low returns as compared to high risks stocks that offer high returns. The volatility of the shares or stocks is measured using the company’s beta. A beta of 3.1 as in the case of Sears shows that its shares are highly volatile compared to the markets and its earnings are also 3.1 times what the average market earns. The shares of Sears are more exposed to the general conditions of the market. Stocks with low volatility range between 1 and 0.1 (below 1) while stocks with higher volatility are usually above 1. The stocks of Sears are more volatile that the NASDAQ stock market whose representative index in this case is usually equal to 1. The shares of Sears will most likely be accepted by a risk prone investor as the shares have fluctuated substantially in the past and they may offer good returns to a strategic investor. (Khan, 1993)
Finally to conclude, the investment in Sears’s shares offers a good investment opportunity though the current returns on its Earnings Per Share worrying, they also depend on a number of factors. If the company is investing in larger expansions and making entry into other emerging markets it has to spend more money and it will show negatively on its earnings including its EPS as in the case of Sears. The earlier years were favorable to Sears as compared to the current year. The company should reposition itself, restrategize and regain its initial success in the retail market.
Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business.
Khan, M. (1993) Theory & Problems in Financial Management. Boston: McGraw Hill
Lahiff, K.A. (2014) Why Sears Holdings (SHLD) Stock Is Soaring Today. The Street, April 17 2014.
Vance, D. (2003) Financial analysis and decision making: tools and techniques to solve
financial problems and make effective business decisions. New York: McGraw-Hill.
|Sears Financial Information|
|Cost of Goods||32750||31850||31680||30170||28100|
|TT Assets- Inventories||2730||2610||1830||1710||1930|
|Average total assets||24585||22870||20360||18800||18260|
|Earnings Per Share(Basic)||1.99||1.19||-29.4||-8.78||-12.87|