FRP 2 NAME TA Financial Reporting Project 2 READ ALL THE INSTRUCTIONS FAILURE TO DO SO MAY COST YOU POINTS Use the instructions from the first FRP For Abercrombie and American Eagle you will need the 2014 and 2013 annual reports For the 2013 annual report you will only use the 2012 year since the 2014 report has the 14 and 13 numbers Sometimes prior year numbers are corrected in current year reports so use the correct reports Use formulas where you can This must be turned in using excel and typed Print to 3 pages only Please note that I have provided some answers to help you figure out the rest 1 Compute the following ratios or for the companies below Show the components of the numerator and denominator of your calculation and carry your answer out to 1 10th of a or 3 decimal points example 2 300 3 400 676 or 67 6 This is just to show style and not actual formulas Liquidity is an important factor for companies to monitor think about why that is and do the following Ratio Current Ratio See page 729 of your book Ratio Current Ratio Company Year Abercrombie 2014 1 164 972 Company Year Abercrombie 2013 2 397 1 320 566 485 956 1 940 923 560 2 313 570 0 62 2 575 435 1 113 999 0 34 1 390 322 0 63 3 A current ratio of less than one indicates which of the following circle the best answer a The company will have a hard time paying current debt b The company will have an easier time paying current debt Page 1 of 6 0 62 Company Year American Eagle 2012 0 40 3 475 802 2013 Abercrombie 2 816 709 4 510 805 1 144 594 3 120 065 Use your book to get more info on these ratio s 2 Answer the following 2014 Which company is more liquid in each year Abercrombie use the current ratio P 765 67 tells what a good current ratio is 2 619 Company Year Abercrombie 2012 Company Year American Eagle 2013 3 305 802 1 141 800 435 902 4 116 897 Company Year American Eagle 2014 Gross Margin 2 223 Company Year Abercrombie 2013 3 744 030 1 893 Company Year American Eagle 2012 415 478 Company Year Abercrombie 2014 1 307 824 690 801 Company Year American Eagle 2013 459 093 Gross Margin 2 324 568 222 Company Year American Eagle 2014 890 513 Company Year Abercrombie 2012 2012 American Eagle 0 37 FRP 2 4 6 Perform horizontal time period to time period analysis for the report year 2014 on key lines of the income statement See last page for how to do this Carry your analysis out to 1 10th of a percentage Show your work and results Use formulas where you can Abercrombie 4 Find the percent change in sales total 5 Find the percent change in Gross Margin total 3 744 030 4 116 897 American Eagle 9 000 3 305 802 3 475 802 4 116 897 3 475 802 Abercrombie American Eagle 2 313 570 2 575 435 10 000 1 113 999 1 390 322 4 890 25 000 Do not use GM find the change 6 Find the percent change in net income 2 575 435 1 113 999 Abercrombie American Eagle 51 821 54 628 5 000 54 628 80 322 82 983 3 000 82 983 Based on 4 6 which company is doing better give your reasons why American Eagle is doing better because their percent change in net income is higher than Abercrombie Review the Balance Sheet and Footnotes for both companies then answer the following set of questions ONLY USE THE 2014 Annual Report for these next questions 7 Estimates What does each company say about estimates and name at least one account each company has that would use estimates Abercrombie Page 37 American Eagle Page 43 45 the Company revises its estimates and assumptions as new information becomes available Company estimates a markdown reserve for future planned permanent markdowns 8 Locate the cost of goods sold footnote what is included in costs for each Just list some of the items Abercrombie COGS include ready inventory for sale including product costs freight Page 49 American Eagle Cost of sales consists of merchandise costs including design importing and inbound freight costs Page 49 9 What is the advertising marketing expense for each company AND what type of advertising do the companies do Abercrombie Page 49 The Company recognized 84 6 million during the 2014 Fiscal year American Eagle Page 50 The Company recognized 94 2 million during the 2014 Fiscal year Page 2 of 6 FRP 2 10 What method s of depreciation does the company use for financial statement purposes Answer for both companies Abercrombie Depreciation and amortization of property and equipment are computed for financial reporting purposes on a straight line basis American Eagle depreciation computed utilizing the straight line method over the assets estimated useful lives 11 Locate the inventory footnote What method do they use to account for inventory costs note retail is a form of LIFO Abercrombie lower of cost or market on a weighted average cost basis American Eagle lower of average cost or market utilizing the retail method LIFO 12 Using the cash flow statement please tell me how much each company invested in Property Plant and Equipment for the year 2014 this is sometimes referred to as Capital Expenditures Remember numbers are truncated so tell me the actual amount Do not include equipment leased to others Abercrombie 967 001 000 American Eagle 694 856 000 13 For each company locate the footnote disclosure for commitments contingencies leases rent and briefly explain what a contingency is asset or liability and summarize the footnote with page number Abercrombie Page 48 Contigencies are possible numbers that may arise in the future and can be either assets or liabilities An example of a contingent liability would be a pending law suit Depending on the outcome a company may have to pay or they may not have to A contingent asset is an asset that has the possibility of economic benefits in the future that can not be controlled by the company American Eagle Page 50 14 Quarterly financial data helps readers determine the seasonality of the company s operations Locate the quarterly data in the annual report and tell me if there any major seasonal fluctuations which quarters have the highest sales If not please note that they are not seasonal Google seasonality for more info Abercrombie The 4th quarter had the highest net income of 44 388 000 Page 72 American Eagle Page 68 The 4th quarter had the highest net income of 61 608 000 15 Complete the following reconciliation for the current annual report year 2014 this is just for the Retained Earnings section not for total stockholders equity Show beginning bal and then list all other activity in R E and then show the ending balance key numbers have been