Balence Sheet Analysis

Financial Statement Analysis: Sears Holdings Corporation (SHLD)

Based on your analysis of the balance sheet, articles you read and industry reports write a brief analysis (1-3 pages) identifying:

1.Strengths of the company you see in their Balance Sheet.
Sears has done an excellent job of reducing their Liabilities by nearly 5%. Most categories have been dramatically trimmed except for 'short term liabilities' and 'current portion of long term debt'. This short term debt is not great because it may be indicating the lack of cash available to operate the business.
The second strength may be the increased accounts receivable. This may indicate weakness in that Sears may be having difficulty collecting monies or that it is trying to boost 2008 profits by selling product in advance, recording the sale but waiting for payment sometime in the future.
2.Weaknesses of the company you see in their Balance Sheet.
As we saw in the Income Statement Analysis last week, a majority of items are trending down year over year. It appears by the trend in the vertical analysis that Sears has increased the depreciation of assets. I was unable to find any disclosures about this, but it may be a way of reducing assets to be in better condition for taxes (??? I'm out on a twig here???).
Probably the most significant finding here was that the 'interest coverage' ratio was well below one. This indicates that all of the companies profits (plus some additional monies) are going to pay for interest on debt. This paired with the exponential increase on short term debt spells nothing but trouble. Short term debt is typically borrowed at a higher interest rate than long-term secured debts.
3.Possible emerging issues with the company and/or industry.
Although it was not one of the ratios calculated I noticed the 'profit per employee” for Sears was -$10. The industry average was well over $15,000 per employee. Talk about a scary ratio. All the signs are pointing to failure, unless there is a miracle turnaround.
4. Questions you might ask the company if you were interviewing them to write an article about their future.
a) What are your plans to reduce short-term debt?
b) When will you deal with the reality that your 'goodwill' values are overstated?
c) What steps are you taking to improve your profit margin?
d) How do you plan to consolidate (or differentiate) your marketing strategies between Kmart and Sears?
e) If you had the opportunity to Merge with Sears today, would you take it?


Note: My calculated ratios were well off of the published numbers, so I don't know what happened there. The only thing I can think is that the published numbers were from 2009 not 2008 as I calculated them... I suppose their fiscal year just ended so it is possible.

Resources:
http://www.searsholdings.com/invest/
http://moneycentral.msn.com/investor/invsub/results/compare.asp?Symbol=JCP
http://moneycentral.msn.com/investor/invsub/results/compare.asp?Symbol=WMT
http://moneycentral.msn.com/investor/invsub/results/compare.asp?Symbol=SHLD