answer this entire mini case

Mini-Case In the introduction to this chapter, we described the situation faced by The Gap, Inc. (GPS). We learned that the retail clothing chain had grown dramatically over the first two decades of its existence but had fallen on difficult times in 2007. Assume that you have been hired as a new management trainee by the corporate offices of Gap in the spring of 2009 and that you report directly to the director of sales and marketing. Although your job is not specifically in finance, your boss is a major contributor to the firm's overall financial success and wants you to familiarize yourself with the firm's recent financial performance. Specifically, she has asked that you review the following income statements for the years 2005-2008. You are to review the firm's revenue, gross profit, operating income, and net income trends over these four years. Gap, Inc. Income Statements (US$ millions, except per share data), 2005-2008 2008 2007 2006 2005 Total revenues $15,763 $15,923 $16,019 $16,267 Cost of goods sold 10,071 10.266 10,145 9.886 Gross profit $ 5,692 $ 5,657 $5,874 $ 6,381 Total operating expense 4,377 4,432 4,099 4.402 Net operating income $ 1,315 $ 1,225 $ 1,775 $ 1,979 Interest income (expense) 91 90 (108) Earnings before taxes $1,406 $ 1,315 $ 1,823 $ 1,871 Income taxes 539 506 692 721 Net income S 867 $ 809 $ 1.131 $ 1,150 After contemplating the assignment, you decide to calculate the gross profit margin, operating profit margin, and net profit margin for each of these years. It is your hope that by evaluating these profit margins you will be able to pinpoint any problems that the firm may be experiencing. Finally, your boss points out that the firm may need to raise additional capital in the near future and suggests that you review the firm's past financing decisions using both the firm's balance sheets and its statements of cash flows. Specifically, she asks that you summarize your assessment of the firm's use of debt financing over these four years. Gap, Inc. Balance Sheets (US$ millions, except per share data), 2005-2008 2008 2007 2006 2005 Cash and short-term investments 1,901.00 2,600.00 2,987.00 3,062.00 Inventory 1,575.00 1,796.00 1,696.00 1,814.00 Other current assets 610.00 633.00 556.00 1.428.00 Total current assets 4,086.00 5,029.00 5,239.00 6,304.00 Gross plant and equipment 7,320.00 7,135.00 6,958.00 7,169.00 Other long-term assets 485,00 318.00 336.00 368.00 Total assets 7,838.00 8,544.00 8,821.00 10,048.00 Accounts payable 1,006,00 772.00 1,132.00 1,240.00 Accrued expenses 1,259.00 1,159.00 725.00 924.00 Notes payable/short-term debt 0.00 0.00 0.00 0.00 Statements of Cash Rows (US$ millions, except per share data), 2006-2008 2005 Net income 1,113 Depreciation Deferred taxes Noncash items Changes in working capital Cash flow from operating activities $ 2,081 $1,250 5 1,551 Capital expenditures 0982) (572) (500) Other investing cash flow items, total Cash flow from investing activities 5 (274) $ (150) Financing cash flow items Total cash dividends paid asunne tretirans at Stock net anca retinants of st. 16: Cash flow from financing activities $12.146) $1,102) $12.040) Foreign exchange affects Not change in cash