Statement of Cash Flows- Sears

Week Four – Sears Holding Corporation:
Statements of Cash Flows

Based on your analysis of the statement of cash flows, articles you read and industry reports write a brief analysis (1-3 pages) identifying
1. Strengths of the company you see in their financial statements.
The most positive performance indicator was the $1.003 billion that was converted from inventory to cash. Having money sitting on the shelf is not positive for any business unless it is preventing a stock-out situation. There is a fine balance to how much inventory to hold. According to some analysts, there is concern that this inventory situation was required to be prepared for the 2010 debt situation in which Sears is loosing half it's $5 billion in short term financing (bnet.com).
2. Weaknesses of the company you see in their financial statements.
The most significant weakness of SHLD is the fact that they cannot generate income. The net income decreased by 93.6%. That means the income for 2008 was only 6.4% of what it was the previous year and 3.5% of two years prior. That is not a good trend. What does that mean? Well most of the positive cash generated was not from selling product. When a business does not make money at its core competency, there is trouble.
There are people however that believe Sears is undervalued from a shareholder perspective. One such investor shared his opinion about the cash value of the company if it were to be sold off (myvalueidea.blogspot.com). Although this person has no credibility (that I know of) his examples make sense.
3. Possible emerging issues with the company and/or industry.
It is possible that Sears is more valuable as parts an pieces sold to the highest bidder. I think it would be difficult to say that a rebound for Sears is likely. There are several actions that lead me to believe that SHLD is prepping for an exit from retail. Their board continues to authorize stock buy-backs which keep stock prices high. They continue to acquire other businesses that have high valued assets (Sears 10k). They are spending little to invest in the operations of their company by compared to stock buy-backs (chicagotribune.com).
4. Questions you might ask the company if you were interviewing them to write an article about their future.
1)Why are you re-purchasing stock?
2)What is the vehicle that caused the nearly 500% increase in cash from 'credit issuances'?
3)Please explain how you had positive 'merchandise payables' in 2007. Why are they at nearly $400 million now?
4)What steps are you taking to avoid such a large impact from exchange rate differences?
5)Do you project similar improvements in cash improvement this year?







Resources:

Burman & Knight (2006). Financial intelligence: A Managers guide to knowing what the numbers really mean. Boston, Mass: Harvard Business School Press.
http://www.chicagotribune.com/business/chi-fri-notebook-sears-1218dec18,0,7721969.story
http://industry.bnet.com/retail/10005255/perspectives-may-obscure-sears-real-needs/

http://myvalueidea.blogspot.com/2008/03/i-have-wrote-about-shld-being-value.html