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Posted on Sep 10, 2024

number of stores: year 5: 788 year 4: 700 year 3: 597 LO 4-1, LO 4-2, LO 4-3, LO 4-4 4.25 Calculating and Interpreting Profitability

number of stores:

year 5: 788

year 4: 700

year 3: 597 image text in transcribed

LO 4-1, LO 4-2, LO 4-3, LO 4-4 4.25 Calculating and Interpreting Profitability Ratios. Abercrombie & Fitch sells casual apparel and personal care products for men, women, and children through retail stores located primarily in shopping malls. Its fiscal year ends January 31 of each year. Financial statements for Abercrombie & Fitch for fiscal years ending January 31, Year 3, Year 4, and Year 5 appear in Exhibit 4.34 (balance sheets), Exhibit 4.35 (income statements), and Exhibit 4.36 (state- ments of cash flows). These financial statements reflect the capitalization of operating leases in property, plant, and equipment and long-term debt, a topic discussed in Chapter 6. Exhibit 4.37 (page 257) presents financial statement ratios for Abercrombie & Fitch for Years 3 and 4. Selected data for Abercrombie & Fitch appear here. Questions, Exercises, Problems, and Cases Exhibit 4.34 Abercrombie & Fitch Balance Sheets (amounts in millions) (Problem 4.25) January 31, Year 4 Year 3 Year 5 Year 2 $ 350 56 $ 43 37 $ 28 51 05 26 130 ASSETS Cash Marketable securities Accounts receivable Inventories Prepayments Total Current Assets Property, plant, and equipment, net 249 2 $ 552 1,560 $ 405 947 $2,220 52 $1.352 $ 32 $ BA 54 132 276 $ 414 872 ; 311 Other assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable Short-term borrowing Other current liabilities Total Current Liabilities Long-term debt Other noncurrent liabilities Total Liabilities Common stock Additional paid-in capital Retained earnings Treasury stock Total Shareholders' Equity Total Liabilities and Shareholders' Equity $ 164 591 12 757 265 13 $1,551 $ 140 1,076 [549) $659 52,220 905 [1B] $ 59 52,096 70 (109] S 736 $1202 520 (67) ,595 $1,352 REQUIRED Calculate the ratios in Exhibit 4.37 for Year 5. The income tax rate is 35%. Analyze the changes in ROA for Abercrombie & Fitch during the three-year period, sug- gesting possible reasons for the changes observed. Analyze the changes in ROCE for Abercrombie & Fitch during the three-year period, sug- gesting possible reasons for the changes observed. CHAPTER & Profitability Analysis Exhibit 4.35 Year 3 Abercrombie & Fitch Income Statements (amounts in millions except retail space and employees) (Problem 4.25) For the Year Ended January 31, Year 5 Year 4 $1,708 $ 2,021 Sales 1936) (1,048) Cost of goods sold (386) (562) Selling and administrative expenses (54) (63) Interest expense Interest income Income tax expense (137) (131) Net Income $ 216 $ 205 $1,596 (893) (343) (48) (120 S 195 Year 4 Year 3 Year 5 Square feet of retail space in thousands) 5,590 Number of employees 48,500 Growth rate in sales 18.3% Comparable store sales increase 2.0% Source: Abercrombie & Fitch Co, Form 10-K for the Fiscal Years Ended 2003-2005 5,016 30,200 7.0% (9.0%) 4,358 22.000 16.99 5.0% Exhibit 4.36 Abercrombie & Fitch Statements of Cash Flows (amounts in millions) (Problem 4.25) For the Year Ended January 31, Year 5 Year 4 Year 3 $ 205 $ 195 OPERATIONS Net Income Depreciation and amortization Addbacks and subtractions, net Increase) Decrease in inventories Increase (Decrease) in current liabilities Cash Flow from Operations 90 $ 216 106 13 (34) 125 $ 426 56 (27) (34) 60 346 $ 343 $ (Continued) Questions, Exercises Problems and Cases Exhibit 4.36 (Continued) S (185) INVESTING Property, plant, and equipment acquired Marketable securities sold Marketable securities purchased Other investing transactions Cash Flow from Investing 4779 5 (160) 3,771 3.849) 5 (146) 2.419 12,729) (4,314) $ (280) $ (238) $ (451) FINANCING (116) (43) increase in short-term borrowing Increase in common stock Acquisition of common stock Dividends Cash Flow from Financing Change in Cash Cash-Beginning of year Cash-End of Year $ 20 49 (435) (46) $ (412) $ 294 $ $ (92) 13 $ $ (39) (144) 188 43 43 $ 350 $ 56 $ Abercrombie & Fitch Co. Form 10-K for the Fiscal Years Ended 2001-2005 Exhibit 4.37 Year 3 Abercrombie & Fitch Financial Statement Ratio Analysis (Problem 4.25) Year 5 Year 4 14.1% Profit margin for ROA 0.9 Assets turnover 12.3% ROA 12.0% Profit margin for ROCE 24 Capital structure leverage 25.7% ROCE 54.8% Cost of goods sold/Sales 22.6% Selling and administrative expense/Sales 0.296 Interest revenue/Sales Income tax expense (excluding tax effects 8.8% of interest expense)Sales 200.9 Accounts receivable turnover Inventory turnover 1.4 Fixed assets turnover $2,440,000 Sales per store $ 340.51 Sales per square foot $ 56,556 Sales per employee 14.2% 1.0 14.3% 12.296 2.4 29.396 56.0% 21.5% 0.3% 8.6% 103.0 6.0 5.1 1.5 $2,673,367 $ 366.22 $ 72,545 LO 4-1, LO 4-2, LO 4-3, LO 4-4 4.25 Calculating and Interpreting Profitability Ratios. Abercrombie & Fitch sells casual apparel and personal care products for men, women, and children through retail stores located primarily in shopping malls. Its fiscal year ends January 31 of each year. Financial statements for Abercrombie & Fitch for fiscal years ending January 31, Year 3, Year 4, and Year 5 appear in Exhibit 4.34 (balance sheets), Exhibit 4.35 (income statements), and Exhibit 4.36 (state- ments of cash flows). These financial statements reflect the capitalization of operating leases in property, plant, and equipment and long-term debt, a topic discussed in Chapter 6. Exhibit 4.37 (page 257) presents financial statement ratios for Abercrombie & Fitch for Years 3 and 4. Selected data for Abercrombie & Fitch appear here. Questions, Exercises, Problems, and Cases Exhibit 4.34 Abercrombie & Fitch Balance Sheets (amounts in millions) (Problem 4.25) January 31, Year 4 Year 3 Year 5 Year 2 $ 350 56 $ 43 37 $ 28 51 05 26 130 ASSETS Cash Marketable securities Accounts receivable Inventories Prepayments Total Current Assets Property, plant, and equipment, net 249 2 $ 552 1,560 $ 405 947 $2,220 52 $1.352 $ 32 $ BA 54 132 276 $ 414 872 ; 311 Other assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable Short-term borrowing Other current liabilities Total Current Liabilities Long-term debt Other noncurrent liabilities Total Liabilities Common stock Additional paid-in capital Retained earnings Treasury stock Total Shareholders' Equity Total Liabilities and Shareholders' Equity $ 164 591 12 757 265 13 $1,551 $ 140 1,076 [549) $659 52,220 905 [1B] $ 59 52,096 70 (109] S 736 $1202 520 (67) ,595 $1,352 REQUIRED Calculate the ratios in Exhibit 4.37 for Year 5. The income tax rate is 35%. Analyze the changes in ROA for Abercrombie & Fitch during the three-year period, sug- gesting possible reasons for the changes observed. Analyze the changes in ROCE for Abercrombie & Fitch during the three-year period, sug- gesting possible reasons for the changes observed. CHAPTER & Profitability Analysis Exhibit 4.35 Year 3 Abercrombie & Fitch Income Statements (amounts in millions except retail space and employees) (Problem 4.25) For the Year Ended January 31, Year 5 Year 4 $1,708 $ 2,021 Sales 1936) (1,048) Cost of goods sold (386) (562) Selling and administrative expenses (54) (63) Interest expense Interest income Income tax expense (137) (131) Net Income $ 216 $ 205 $1,596 (893) (343) (48) (120 S 195 Year 4 Year 3 Year 5 Square feet of retail space in thousands) 5,590 Number of employees 48,500 Growth rate in sales 18.3% Comparable store sales increase 2.0% Source: Abercrombie & Fitch Co, Form 10-K for the Fiscal Years Ended 2003-2005 5,016 30,200 7.0% (9.0%) 4,358 22.000 16.99 5.0% Exhibit 4.36 Abercrombie & Fitch Statements of Cash Flows (amounts in millions) (Problem 4.25) For the Year Ended January 31, Year 5 Year 4 Year 3 $ 205 $ 195 OPERATIONS Net Income Depreciation and amortization Addbacks and subtractions, net Increase) Decrease in inventories Increase (Decrease) in current liabilities Cash Flow from Operations 90 $ 216 106 13 (34) 125 $ 426 56 (27) (34) 60 346 $ 343 $ (Continued) Questions, Exercises Problems and Cases Exhibit 4.36 (Continued) S (185) INVESTING Property, plant, and equipment acquired Marketable securities sold Marketable securities purchased Other investing transactions Cash Flow from Investing 4779 5 (160) 3,771 3.849) 5 (146) 2.419 12,729) (4,314) $ (280) $ (238) $ (451) FINANCING (116) (43) increase in short-term borrowing Increase in common stock Acquisition of common stock Dividends Cash Flow from Financing Change in Cash Cash-Beginning of year Cash-End of Year $ 20 49 (435) (46) $ (412) $ 294 $ $ (92) 13 $ $ (39) (144) 188 43 43 $ 350 $ 56 $ Abercrombie & Fitch Co. Form 10-K for the Fiscal Years Ended 2001-2005 Exhibit 4.37 Year 3 Abercrombie & Fitch Financial Statement Ratio Analysis (Problem 4.25) Year 5 Year 4 14.1% Profit margin for ROA 0.9 Assets turnover 12.3% ROA 12.0% Profit margin for ROCE 24 Capital structure leverage 25.7% ROCE 54.8% Cost of goods sold/Sales 22.6% Selling and administrative expense/Sales 0.296 Interest revenue/Sales Income tax expense (excluding tax effects 8.8% of interest expense)Sales 200.9 Accounts receivable turnover Inventory turnover 1.4 Fixed assets turnover $2,440,000 Sales per store $ 340.51 Sales per square foot $ 56,556 Sales per employee 14.2% 1.0 14.3% 12.296 2.4 29.396 56.0% 21.5% 0.3% 8.6% 103.0 6.0 5.1 1.5 $2,673,367 $ 366.22 $ 72,545