Kohl's 2014 Annual Report Download - page 24

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Table of Contents
Our financing activities used cash of $827 million in 2013 and $1.3 billion in 2012. The decrease was primarily due to lower share repurchases.
Free Cash Flow
We generated $1.2 billion of free cash flow in 2014; an increase of $107 million over 2013. As discussed above, the increase is primarily the result of
higher cash provided by operating activities in 2014. Free cash flow is a non-GAAP financial measure which we define as net cash provided by operating
activities and proceeds from financing obligations (which generally represent landlord reimbursements of construction costs) less acquisition of property &
equipment and capital lease & financing obligation payments. Free cash flow should be evaluated in addition to, and not considered a substitute for, other
financial measures such as net income and cash flow provided by operating activities. We believe that free cash flow represents our ability to generate
additional cash flow from our business operations. See the key financial ratio calculations section below.
Key financial ratios.
The following ratios provide additional measures of our liquidity, return on investments, and capital structure.
 
Working capital  
$ 2,556
$ 2,184
Current ratio 
1.93
1.86
Free Cash Flow (a)  
$ 1,127
$ 381

Ratio of earnings to fixed charges 
3.7
4.1
Return on Assets 
6.2%
6.9%
Return on Gross Investment (a) 
15.5%
16.8%

Debt/capitalization  44.8% 42.9%
Adjusted Debt to EBITDAR (a)  2.42 2.23
(a) Non-GAAP financial measure
Liquidity ratios.
Liquidity measures our ability to meet short-term cash needs. Working capital increased $283 million and our current ratio increased 6 basis points
over year-end 2013. In 2013, working capital increased $372 million and our current ratio increased 7 basis points over year-end 2012. The increases were
primarily due to higher cash balances.
Return on investment ratios.
Lower earnings resulted in decreases in all three of our return on investment ratios - ratio of earnings to fixed charges, return on assets and return on
gross investment ("ROI"). See Exhibit 12.1 to this Annual Report on Form 10-K for the calculation of our ratio of earnings to fixed charges and the key
financial ratio calculations below for the return on assets and ROI calculations.
We believe that ROI is a useful financial measure in evaluating our operating performance. When analyzed in conjunction with our net earnings and
total assets and compared with return on assets, it provides investors with a useful tool to evaluate our ongoing operations and our management of assets from
period to period. ROI is a non-GAAP financial measure which we define as earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”)
divided by average gross investment. Our ROI calculation may not be comparable to similarly-titled measures reported by other companies. ROI should be
evaluated in addition to, and not considered a substitute for, other financial measures such as return on assets.
Capital structure ratios.
Our debt agreements contain various covenants including limitations on additional indebtedness and a maximum permitted debt ratio. As of January
31, 2015, we were in compliance with all debt covenants and expect to remain in compliance during 2015. See the key financial ratio calculations section
below for our debt covenant calculation.
Our debt/capitalization ratio was 44.3% at year-end 2014 and 44.8% at year-end 2013. The decrease is primarily due to lower store lease obligations.
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