Acquired in 2017, Staples sold office supplies, business technology products, facilities supplies, copy and print services, and office furniture through retail stores, direct sales, and online.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
By June 30, 1995, all of the Company's $115,000,000 of 5% Convertible Subordinated Debentures due on November 1, 1999, other than Debentures in an aggregate amount of $184,000, were converted into 8,611,200 shares of common stock at a conversion price of $13.33 per share. The total principal amount converted was credited to common stock and additional paid-in capital, net of unamortized expenses of the original debt issue and accrued but unpaid interest.
On May 21, 1998, the Company completed the acquisition of Quill Corporation ("Quill") and certain related entities (the "Merger"). The Merger is structured as a tax-free exchange of shares in which the stockholders of Quill and such related entities received approximately 26 million shares of the Company's common stock valued at a combination of fixed and variable prices and cash of approximately $54 million which would equate to a purchase price of approximately $690 million. The Merger is being accounted for as a pooling of interests. Quill is a privately held company which sells office supplies to businesses in the United States via a mail order catalog, the internet and outbound telemarketing. Quill recorded $550 million in sales for the year ended December 31, 1997.
On November 9, 1999, at a special stockholders meeting, the stockholders of Staples, Inc. approved the Tracking Stock Proposal and the Stock Plan Proposals as described in the Proxy Statement dated October 12, 1999. On November 12, 1999, approximately 5% of Staples.com Stock (including shares allocable to Staples RD's retained interest) was sold to several investors through a private placement.
From November, 1999 through August, 2001, our certificate of incorporation included two series of common stock, Staples.com common stock ("Staples.com Stock") and Staples Retail and Delivery common stock ("Staples RD Stock"). On August 27, 2001, our stockholders approved a proposal to amend our certificate of incorporation to effect a recapitalization by reclassifying each share of Staples.com Stock into 0.4396 shares of Staples common stock and by reclassifying each share of Staples RD Stock into one share of Staples common stock (the "Recapitalization"). The Recapitalization had no effect on our overall financial position or results of operations.
On October 18, 2002, Staples acquired the European mail order businesses of Guilbert SA, a subsidiary of Pinault Printemps Redoute SA (the "European mail order acquisition"). The aggregate cash purchase price of 806 million Euros (approximately $788 million as of the acquisition date), net of cash acquired of $5.0 million and net of capital leases assumed of $12.9 million, was funded by the proceeds from the September 2002 offering of senior notes, the October 2002 364-Day Term Loan Agreement and cash from operations. The results of the businesses acquired have been included in the consolidated financial statements since that date. The acquired companies are reported as part of the European Operations segment for segment reporting. The European mail order acquisition allowed Staples to enter the fast-growing office supplies mail order market in France, Italy, Spain and Belgium and strengthened its mail order presence in the United Kingdom. The acquired European mail order businesses consist of leading direct mail office products sellers to small businesses in Europe operating under different brands in five countries: JPG and Bernard in France and Belgium, Sistemas Kalamazoo in Spain, Neat Ideas in the United Kingdom and MondOffice in Italy. In connection with the European mail order acquisition, Staples recorded $845.2 million of goodwill and intangible assets, net of fiscal 2003 purchase price adjustments, which were assigned to our European Operations segment.
In July 2008, the Company completed its acquisition of Corporate Express, a Dutch office products distributor with operations in North America, Europe and Australia, through a tender offer for all of its outstanding capital stock. The acquisition of Corporate Express establishes a contract business in Europe and Canada and increases our contract business in the United States. The aggregate cash purchase price of 2.8 billion Euros (approximately $4.4 billion, net of cash acquired).
During the third quarter of 2012, we recorded a pre-tax goodwill impairment charge of $771.5 million related to our Europe Retail and Europe Catalog reporting units as a result of industry trends and the ongoing economic weakness in Europe, and the related strategic decision to reallocate resources to other Staples business units with greater growth potential. At February 2, 2013, we had $3.22 billion of remaining goodwill on our balance sheet, and we could experience material goodwill impairment charges in the future.
During the fourth quarter of 2014 the Company recorded total goodwill impairment charges of $409.5 million, including $280.2 million related to Australia, $116.3 million related to China, and $13.0 million related to South America. These reporting units are components of the Company's International Operations segment.
A goodwill impairment charge of $630 million was recorded in the second quarter of 2016 in connection with an interim impairment test for our Europe Delivery reporting unit.
We recognized goodwill impairment charges totaling $1.4 billion in 2016. Of this amount, $748 million was recorded in the fourth quarter of 2016 in connection with our annual impairment test (charges include $628 million related to our US Stores & Online reporting unit, $72 million related to our China reporting unit, and $48 million related to our Australia reporting unit).
Staples agreed to be acquired by private equity firm Sycamore Partners for $6.9 billion. Staples shareholders will receive $10.25 per share in cash.