Chapter 13 Financial Statement is 40 EXHIBIT 5 THE EMPORIUM Income Statements for Years Ending January 31, 2000-2002 (dollars in thousands) 1/31/00 532,125 2.925 529,200 18,105 $11,095 9080 $ 2,015 1/31/01 $31,265 2,870 $28,395 17,850 $10,545 8,995 5 1,550 1/31/02 $28,970 2.215 526,755 18.385 $ 8,370 9,780 5(1,410) Gross sales Less: Returns and allowances Net sales Cost of goods sold Gross profit Operating expenses Operating profit (loss) Adjustments: Elimination-reserves for inventory losses Reduction bad debt reserve Tax carryback Federal income and other tax expense Net profit before dividends Dividends paid Net profit to retained earnings 870 105 445 650 900 $ 925 $ 1.090 725 5 365 600 $ 300 for retail furniture stores. It was generally known that stores such as The Emporium, carrying low-priced fur- niture lines, were the first to suffer the declines which had come in the late summer and early fall. This situa- tion was followed by signs of a relaxing demand for furniture of higher quality and higher price toward the end of 2001. The drop in volume and the subsequent price-cutting hit the profit margins of some retailers to such an extent that the losses in the latter part of the year in some cases equaled, or more than offset, profits gained in the earlier part of the year. In the early months of 2002, the "softness of the furniture business continued. Although there was no severe drop in the buying of furniture at the retail level, retail stores reduced orders of new lines and reorders of established lines in January, February, and March, be- cause of a general feeling that there had been consider able "overbuying" by customers which would result in a subsequent downturn in retail sales. Throughout the country, orders for shipment in March were down about 30% from February, February had itself shown a drop of about 10% from January. Thus, credit managers among furniture manufacturing concerns were placed in the unhappy position of try- ing to please sales managers who wanted to maintain volume, while they were aware that the shipment of furniture to customers who had already overextended their financial positions was potentially dangerous in such a period. Questions 1. What do you think is happening at Lloyd's and The Emporium? 2. What financial ratios and questions raised in your 2. What financial analysis of the two companies' financial statements support your opinions