DuPont Analysis of Nordstrom against Its Peers



DuPont analysis

Dupont analysis is a highly important tool in the hands of any analyst to understand the value a company can generate for its stakeholders. The Dupont equation breaks ROE (return-on-equity) into three parts, which are net income margin, asset turnover, and financial leverage.

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Net profit margin

Nordstrom (JWN) has averaged an EPS (earnings per share) growth of around 5% in the last three years, and has been able to earn a substantial margin for its equity holders. Nordstrom’s net profit margin in the last fiscal year was 5.3%. It has averaged 5.5% in the last three fiscal years.

Asset turnover

Asset turnover is a tool used to measure the efficiency of a company. It gives an idea about the value of revenue generated by a company relative to its assets. Nordstrom’s average asset turnover is 1.5x, whereas the industry average is 1.3x.

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Financial leverage

Financial leverage, sometimes called debt ratio, measures the amount of debt held by a company. It helps in analyzing the leverage a company receives in its profitability due to tax-deductibility of interest on debt. It also gives an idea of whether a company’s debt is at a manageable level or not. Nordstrom’s financial leverage as of fiscal 2014 is 3.9x.

Return on equity

Nordstrom’s ROE comes to 32%. Its peers in the SPDR S&P Retail ETF (XRT), Macy’s (M), Kohl’s (KSS), and Ralph Lauren (RL), have ROEs of 13.37%, 26.66%, and, 15.53%, respectively.

Nordstrom’s fundamentals and technical performance as outlined in this series put the company ahead of its peers, but let’s have a look at what the consensus on Wall Street has been for the company.


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