Danier Leather Inc. (DL) is one of the largest publicly traded specialty leather apparel retailers in the world. It designs, manufactures, and sells high-quality fashionable leather clothing and accessories to customers. Its products are sold in stores at shopping malls, through its corporate sales division, and online through its website, www.danier.com. Since entering the retail business in 1974, the company has produced a strong, long-term track record of growth and profits from continuing operations. DL's financial statements for 2008 and 2009 are shown on the next few pages.

\section*{Required:}

1. Examine DL's statements of financial position. Identify the four largest changes in the carrying amount of assets, liabilities, and shareholders' equity between the statement of financial position dates. What type of transactions could have caused the changes in the carrying amounts of these items?

2. The carrying amounts of the assets and liabilities reported on the company's statement of financial position reflect a mix of historical acquisition costs, amortized costs, and fair values. Refer to the notes to the company's financial statements for fiscal year 2009 that are available on the company's website (http://cnrp.marketwire.com/client/danier/ annualReports.jsp) and identify the valuation bases used by the company for financial reporting purposes.

3. Using information from the company's statements of financial position and income statement for 2009, can you determine the amount of cash flow generated from operations? If not, where can one find such information?

4. Compute the following ratios for fiscal years 2008 and 2009: debt-to-equity, total asset turnover, return on assets, return on equity, and net profit margin. Use the results of your computations to comment on the company's financial situation and profitability of its operations in both years. DL's total assets and shareholders' equity at June 24,2007 , amounted to \(\$ 81,746\) and \(\$ 48,709\), respectively.

5. Suppose that you are evaluating DL's financial statements for a potential investment in the company's shares. To what extent is the information contained in these financial statements relevant for your decision? What additional information would you require before making your Danier Leather decision?

Transcribed Image Text:

Assets Danier Leather Inc. Consolidated Statements of Financial Position (thousands of dollars) June 27, 2009 June 28, 200 Current Assets Cash $ 24,628 $19,882 Trade receivables 331 755 Income taxes recoverable 631 8 Inventaries (Note 4 21.046 27,404 Prepaid expenses 1,156 1,242 Future income tax asset (Note 11) 245 562 48,056 49,853 Other Assets Pranerty and equipment (Note 5) 19,339 21,312 Goodwill (Note 6) 342 Future ncome tax asset (Note 11) 1,657 1,556 $ 65,052 S 73,063 Liabilities Current Liabilities Trade payable and accrued liabilities $ 10,601 $9,845 Current portion of capital lease obligation 858 Future income tax liability (Note 1) 368 502 10,967 11,205 Deferred lease inducements and runt liability 1,389 1,675 Future income tax liability Note 11) 53 12.356 12,932 Shareholders' Equity Share capital (hore 8) 19.853 21,40 Contributed surplus Retained earnings 823 548 36.020 38,176 56,696 60,133 $ 69,052 $73,063 Sse accompanying notes to il corsolidated financial statements. Approved by the Board (signature) Edwin F. Hawken, Director Source: Den er Leather Annual Report 2009. (signature) Jeffrey Wortsman. Director