Essay About Cash Flows And Sears Holding Corporation

Cash Flows and Capital ExpendituresSignature Assignment:  Cash Flows and Capital ExpendituresDaniel ArmstrongAzusa Pacific Online UniversityAbstractThe financial information for this paper was pulled from the Statement of Cash Flows, which can be found in Item 8 of the form 10-K that the Sears Holding Corporation filed with the SEC in March of 2015.  This section is titled Financial Statements and Supplementary Data.  Along with this, information was also pulled from the companies major purchases, which can be found in the section titled Property Plant and Equipment footnote.  In this paper the author will identify where the major sources of cash flows are coming in and where the major uses of cash flows are going out in the firms Statement of Cash Flow. Cash flow is the lifeblood of any business.  If you were able to gather a group of business owners into a room together and ask them what one thing they would need in order to make their business successful you would undoubtedly get some different answers.  One person might say that they need a good location, or effective marketing, or a product that is in high demand.  All of these answers would be correct.  But there is one thing that is essential in order for a business to be successful that they would all agree on.  That is that they need available cash.  Cash is like gasoline to an automobile.  You need enough fuel in the gas tank in order to get the car started, and you need to keep enough in the tank in order to keep the car running (Cash 2015).  Even a company that is shown to be profitable according to accounting standards can go under if there isnt enough cash on hand to pay bills.

Every year all publicly traded companies have to declare where they have cash coming in and where they have cash going out.  Businesses do this in a separate section of their 10-K.  This section is called the Statement of Cash flows.  A Statement of Cash Flows is broken up into three main sections.  These sections are cash flows from Operating Activities, cash flows from Investing activities, and cash flows from financing activities.  The Operating Activities section measures the cash used or provided by a companys normal operations.  The Investing Activities section catalogs all the money spent or earned by the buying and selling of income producing assets.  The Financing Activities section gauges the flow of money between a company and its creditors (The Essentials 2105).  The following paper will contain an analysis of Sears Holding Corporations Statement of Cash flows, and it will attempt to identify the major areas where Sears has money coming and money going out.  As with most other areas of Sears Holding Corporation’s financial statements there was a net loss posted on the Statement of Cash Flows.  For the years of 2012, 2013, and 2014 Sears Holding Corporation posted a net loss of $1 billion, $1.1 billion, and $1.8 billion dollars respectively.  These are huge losses and they most likely go back many years farther than 2012.  There have been multiple areas where Sears has posted a net loss over the last couple of years.  These areas are spread out among the operating, financing, and investing activities.  The largest losses for the operating activities came in deferred taxes ($719 mill), merchandise payable ($528 mill), and pension and post retirement plan contribution ($450 mill).  The deferred taxes are shown on the Statement of Cash flows because Sears has chosen to use the indirect method.  When using this method any increase in a deferred tax asset or decrease in a deferred tax liability is subtracted as part of adjustments to net income (How Deferred 2015).  Since Sears is a retailer it is easy to see how their merchandise payable would be so high.  They have to purchase goods in order to sell them to their customers.  The pension and post retirement benefits are being paid out to employees who were hired prior to 2004.  According to Crean (2006), “Sears froze its pension as of Jan. 1. But in 2004, before its merger with Kmart Corp., Sears stopped offering pensions to new workers and cut off existing employees below age 40 from building benefits.”  The areas where Sears had the highest positive cash inflows were Merchandise Inventories and Deferred tax valuation allowance, which were about $1.1 billion and $840 million respectively.

Dividends.  The most significant part of a Sears investment is the dividend payment. .  The distribution of the dividends is based on the net income as well as on the business growth rate (P&R) based on a non-GAAP measure of a company’s profitability.  The number is based on the actual number of units that are being produced (the total number of units generated at that price) in the same location.  This is to ensure that cash in Sears stores is distributed as evenly as possible over time.  For example, a Sears store would share 50% of the company’s cash (say 50% of its retail sales value in retail).  To create an average quarterly earnings based on a company’s P&R of $24,000, the last number is computed to reflect an average annualized R&D of $100.  Thus, the typical annual P&R is $14,700 compared to $10,500.  By a fair standard, if 50% of sales in a business is generated at 1,000 units per quarter, that means 10,000 units per quarter for a $1 million store.  Sears had to decide whether to share the rest of its dividend yield or not when using an alternative means of paying dividends at the retail level.  The method has proven to be very efficient for the number of stores in stores.  The results have been consistent throughout the year.

Shopping Corner
All the tables used to define our annual data were written to be comparable across products. The data was compiled from a wide variety of sources.  The numbers used (but not all used within one product and not all used within three) were derived from a range of sources including, among others, financial data on various retail chains (e.g., credit monitoring, inventory and revenue estimates), personal and business information, tax data (including income and returns), and customer survey data.  From this data, each product were identified, selected, and grouped to create a comprehensive and accurate model of a retail environment.

In a typical home or apartment design, with typical floor space available, a 1,000 square foot store needs approximately an apartment.  A 1,000-square foot store needs approximately an apartment within a 3,000 square foot store.  An apartment that is built within the 3,000 square foot space of a Sears store is much more than 1,000 square feet.  The best option given these scenarios is for the store to be located in the neighborhood of where the store is located.  Using the S&P 500, a 2,000 square foot store is at about 3,500 square feet, so assuming an apartment of the same density as a 1,000 square foot store, a 1,000 square foot store in a commercial space would need 6,000 square feet of space to occupy.  Using the S&P 500, an 11,600 square foot store (with a space of 31,000 square feet) would also need to accommodate 1,000 square feet of retail space of about 10,500 square feet. In addition, a 1,000 square foot store in a retail space needs to have retail space of a size that is comparable to that of a normal retail space (as described below) since there is typically less density across the square inch of space.  However, the only way to achieve this is to have a reasonable number of large stores (2,000 or more) or small ones (1,000 or fewer) near our location to achieve the average occupancy of a typical retail space of an average Sears store.  When a 1,000 square foot building is the largest location of a Sears store, about an estimated 1,500 square feet of square space is required to accommodate the size 6,000 square foot location. Additionally, the largest space required for the building is less than 250 square feet of square space. The typical space required (i.e., the space that fits about 95% or about 100%) will either be about 1,000 square feet or 2,000 square feet or more depending on the location. Thus, any space that needs to be filled as many times as there is at the store is usually somewhere near it at least once.