Sears comments

Analyzing Sears 1995-1997 Financial Performance
To begin analyzing the Sears’ financial performance without taking into considerations their Account Receivables characteristics is to ignore themajor driver of the whole finance structure of the company. As stated in the case exhibits, during 1997, 55.1% of the total Revenue comes through the Sears Card. The self-defined policies of these cards,under an open-end revolving scheme, hurt the company’s liquidity ratios, without and important effect on gains from financing sources at least for Sears Balance Sheet.
Average Collection Period andSears Card
For 1996 and 1997, the average collection to clients was 210 and 208 days, respectively. These numbers contrast with other industry companies ratios without a so aggressive concentration onself-credit card sales. Considering the business cycle in 1997, 186 days means that the company’s cash remains fixed for the operations of the business for more than half a year. This situation has abig financial cost for the company and it is reflected in a high interest cost expense which accounts as much as 3.4% of the total revenues. This cost has no apparently benefit for Sears, butadditional research must be made to the nature of income and profit of Master Trust. Assuming that these interests paid by Sears’ credit cards’ clients resulted in big financial profits for Master Trust,there is a discussion to be held about the benefits of having crossed subsidies for this unit.
Collateral effects from the big receivables stock was also reflected in the big Working Capital needs ofSears (0.36% of sales in 1997).
Non Current Assets and Assets Turnover
Sears has a good low level of non current assets equivalent to 20.7% of the total assets. This was achieved by an efficient leaseand service agreements that include renewal and purchase options. However the assets turnover ratio was only 1.07 in 1997. In other words, there is only USD 1.07 of sales generated by USD 1.0 of...