Annual and Cumulative Cash Benefits and Outflows at Nordstrom Company - Report Example

III. Justification

C. Financial impact

1. Proposed projections of the incremental, annual and cumulative cash benefits and outflows at Nordstrom

The proposed investment shall be a new product brand that shall be in line with their product portfolio for their online ventures. For purposes of understanding the success of any new venture, it is vital as well as essential to assess the annual, incremental and cumulative outflows as well as cash benefits. With the introduction of the new product, the company’s revenues are expected to grow. This report, therefore, has shown the analysis of a 8-year expansion proposal as presented in the excel. The analysis was based on the cash ouflow as well as inflow for the company. With the help of the financial principles, the analysis was able to draft all the demand elements, prices, depreciation and assumption. For the preparations of the cumulative cash outflows and benefits, several assumptions were made concerning capital purchase prices and demand. First, the analysis assumed that the proposed project investment would increase the company’s operating income by close to $ 20, 000 within the 8 year period. Besides, it assumed that expenses for the company would reduce respectively within a constant range. These assumptions might not be true because it is not possible to have run on profits without losses. For any new venture, losses are inevitable, therefore, failing to incorporate them might be unrealistic. Secondly, it is unrealistic for both income as well as expenses to remain constant throughout the year because of economic changes and inflation. It is worth noting that all these assumptions were meant to help the company in understanding the various cash inflow that it should expect.

On the other hand, one of the assumption made during the cash ouflows analysis is that the various free cashflows element shall be constant within the 8-year period. The deductions as well as working capital analysis for the 8-year period indicated a different outcome. However, with the concept of incremental analysis, Nordstrom company shall increase its funding more so for the operating expenses in order to maintain new product expansion (Kopelman et al., 2012). Besides, the company will have to increase its support for new programs in order to realize this goal of having a new product. Critically, this new product shall help the Nordstrom company to increase its income. Practically, venturing into this new product shall make the company to earn more profits because of the expected higher cash inflows as compared to cash outflows for the 8-year period.

2. Consolidated financial projection of revenue, pretax income and cash flow for the overall business (check attached excel file).

VI. Financing and Track Record

A. Pros and cons of raising money using internal financing mechanisms versus seeking global markets funding

Nordstrom Inc., a luxury department organization has been in existence since 1901 and has gone through tremendous transformations over the years to reach where it is today (Joung, Hesketh & Neal, 2006). It has managed to open other retail stores in various countries and managed to have a large clientele base following the position of its brand and quality products. The proposed investment opportunity for Nordstrom Inc. is opening a store in Australia. The target market is attractive in terms of economic stability as well as the good taste and preferences of citizens in the country in designer clothing (Givoly et al, 2017). The marketing department needs to package their products and present it to the potential clients with an intention of attracting and retaining them for both short-term and long-term engagements. The right positioning in the new market will also help Nordstrom Inc. to have more customers despite it being a new entrant (Paulson Gjerde & Hughes, 2009). Some of the pros and cons include;

Pros

• Powerful strategy: This is because internal financing mechanism does not add debt profile to the company. Besides, it does not sap the company’s profits with respect to interest payments. This saving option, therefore, allows the company to maintain control of its business because it does not result in complications more so with creditors as well as outside investors.

Cons

• Internal financing mechanism tends to be slow: A company might be on the verge of missing new business opportunities, while building its necessary funds. A company might starve in case more priorities are given to internal operations. However, outside investment might come with numerous benefits that will increase the operating income of the organization. The period before an increase in the operating income is realized, the organization will starve and if corrective measures are not properly installed, then the firm might collapse.

B. Viability of a business combination as a mechanism for expanding into new market

The Australian market fits within Nordstrom, Inc.’s broader mission and goals of expansion and growth. Some of the key principles that guide the organization in its quest for new markets are financing the startup in the early stages until it picks up and partnering with other like-minded businesses that want growth (Joung, Hesketh & Neal, 2006). Financial analysts in the organization make projections for the future after collecting enough information about the target market and its potential for growth. Therefore, Nordstrom Inc. starts a new retail outlet with an idea of what they want to achieve in terms of financial goals. Based on its past earnings and history of growth in other markets, then there is a higher chance that Nordstrom Inc. will succeed when they start operating in the Australian marketplace (Givoly et al., 2017). The Australian market also fits within Nordstrom, Inc.’s mission and goals of providing service and quality to their customers. Their diverse products will satisfy people from all social circles irrespective of their economic position. Further, Nordstrom Inc. stocks female and male clothing, making it a one-stop shop destination for clients.

VI. Track Record

• Nordstrom on a solid financial footing

Current ratio helps in determining the company’s efficiency with respect to operation cycle as well as the ability of the firm to turn its various products into cash. A quick look at Nordstrom current ratio for the year 2017 is as shown below;

For the period that ended in the year 2017, current ratio was given as;

This ratio falls between the acceptable range, which is given as 1 and 3. Therefore, the company is at lower risk of default on debt payments. When the ratio is between 1 and 3, it shows that the firm is financially healthy. However, if it is outside this range, then the firm shall be unhealthy. This is a proof that the company is on a solid financial footing.

• Nordstrom’s trustworthiness

Nordstrom Inc. has had no record of accomplishment of failing to repay its loan and its attractive financial statements are evidence that the firm has a stable flow of income per year (Givoly et al., 2017). Hence, financial lending institutions can have the confidence that Nordstrom Inc. will repay its loan plus interest within the stipulated time. In line with this, an analysis of the financial statements reveals that the company repaid its loans and has never defaulted (Joung, Hesketh & Neal, 2006). From the figure, operating income is positive as well as its leverage which is more than double for the year ending 2015. Further, Nordstrom Inc. projects to have an increase in the future, which is possible through the various investment projects, the organization will take (Joung, Hesketh & Neal, 2006). Its performance on the stock market is evidence that the firm does not have a large financial burden as it sells its shares to the public and shareholders earn returns in the form of dividends at each financial year-end. Financial statements of Nordstrom Inc. reveal that the firm has had sales increasing progressively over the years attributed to the aggressive marketing and quality services that the organization gives its customers (Paulson Gjerde & Hughes, 2009). For instance, between the period of 2012 and 2016, Nordstrom Inc. has made profits of over ten thousand million dollars. They have had to depend on external financing and debts but have ensured they repaid the loans within the stipulated time. Further, the organization is confident that projections for the next three to five years will bring positive returns. There is also a possibility of having the firm depends on its internal funding options with other investments that will take place in the future.

Ethically, Nordstrom Inc. has had a past of giving back to the community through corporate social responsibility activities (Joung, Hesketh & Neal, 2006). For instance, the company managed to team up with St. Joseph’s Health Centre Foundation to engage in team building activities and also joined the LGBTQ community in 2017 to celebrate their success in becoming a legally recognized movement. Nordstrom Inc. also takes part in protecting the environment through active participation in packaging their products in recyclable bags. This helps ensure that when their customers dispose of off their bags, they can decompose and cause no harm to the environment in the long-term (Paulson Gjerde & Hughes, 2009. Nordstrom, Inc.’s legal, financial behavior has had a positive record in the past with the firm settling in kind claims and cases presented in court against them. For instance, in 2016, a former employee at Nordstrom Inc. filed for compensation from the company for long working hours, which had been unpaid (Givoly et al., 2017). The court found the firm guilty and it had to pay the damages. Accessing the record of accomplishment of the organization in settling claims is largely clean and viable. Therefore, they would qualify for external funding from lending institutions. There is no lawsuit against Nordstrom Inc. to have failed in honoring its part of a contract (Kopelman et al., 2012). This means that the firm considers its reputation important and has ensured that there are no major legal and ethical cases incriminating it since its inception.