Equity Analysis of

A quantitative look through Trend Analysis, Comparative Analysis, and Financial Ratio Data

Presented by: James, Susha Zhang, Renjun Ying

Company Background

• Founded as a single store in San Francisco in 1969, and is currently one of the top American companies within the family clothing store industry. SIC 5651

• Prides itself on quality and customer focus with product offerings in apparel, accessories, and personal care products for men, women, and children

• Not unique. Many competitors. Barriers to entry relatively low; competitive scope crowded.

Company Background (cont’d)

• Gap differentiates through offering many brands at different price points and quality

• Also targets various demographics

• Various brand name subsidiaries also include:

A Trend Analysis view2009 2010 2011 2012 2013

Operating Assets

Operating Cash 585.33 147.56 95 107.69 86

Net Receivables 0 0 205 297 331

Inventories 1506 98 107.57 107.24 116.73

Prepaid Expenses 356 73 40.7 41 42.4

Other Current Assets 387 86.8 74.4 93 98.7

Net Plant, Property & Equipment 2933 89.6 87.4 86 89.3

intangibles 197 94 89.3 89.3 160.4

deferred charges 0 0 0 0 0

Other Assets 429 118.1 93 96.5 94

Total Operating Assets 6393.33 98 93 96 101

Operating Liabilities

Accounts Payable 975 105.3 107.6 109.3 117.3

Taxes Payable 57 72 87.7 8.8 189

Accrued Expenses 548 106 71.9 73.4 75.4

Other Current Liabilities 528 91.3 114 112.9 128.6

Total Operating Liabilities 2108 101 99 98 111

Net Operating Assets (NOA) 4285.33 96 90 95 96

REFORMULATED BALANCE STATEMENT TREND ANALYSIS

A Trend Analysis view (cont’d):Reformulated Income Statement TREND ANALYSIS

2009 2010 2011 2012 2013

Sales 14526 97.7 101 99.8 107.7

Cost of Goods sold 8426 92.7 96.4 97 105.9

Gross profit 6100 104.6 107.1 96.2 110.3

Operating expenses

Selling, General & Administrative expenses 3899 100.3 100.6 98.4 108.5

Depreciation, depletion&Amortization 653 100.3 99.2 90.7 85.6

Operating income from sales(before tax) 1548 117.2 127.1 92.9 125.5

Taxes

Taxes as reported 617 115.7 126.1 86.9 117.7

Tax on financial items and other operating income 3.15 66.7 77.8 866.7 1033.3

Operating income from sales(after tax) 927.85 118.4 128 94.2 125.5

Extraordinary Items 0 0 0 0 0

Discontinued operations 0 0 0 0 0

Income before extraordinary items & discontinued operations927.85 118.4 128 94.2 125.5

Financing income/expense

Interset expense 9 66.7 77.8 866.7 1033.3

Tax effect(35%) 3.15 66.7 77.8 866.7 1033.3

Net interest income/expense 5.85 66.7 77.8 866.7 1033.3

Noncontrolling interest-inc Acc 0 0 0 0 0

Preferred dividends 0 0 0 0 0

Savings due to common stock equivalents 0 0 0 0 0

Net financing income 5.85 66.7 77.8 866.7 1033.3

Non-operating income/expense 45 15.5 13.3 20 26.7

Special Items 0 0 15 0 0

Operating income(after tax) 967 114 123 86.1 117.4

Comprehensive income 967 114 123 86.1 117.4

Trend Analysis

0

200

400

600

800

1000

1200

1400

January, 2009 January, 2010 January, 2011 January, 2012 January, 2013

Comprehensive Income

Comparative Analysis12 % 13 % 12 % 13 %

Operating Assets

Operating Cash 630.33 10 503.33 8 692.33 10 428.33 6

Accounts Recievables 297 5 331 5 2033 29 2129 29

Inventories 1615 26 1758 27 1148 16 1360 19

Prepaid Expenses 146 2 151 2 0 0

Other Current Assets 360 6 382 6 302 4 307 4

Property Plant and Equipment 2523 41 2619 41 2469 35 2579 36

Intangibles 176 3 316 5 175 2 175 2

Deferred Taxes 0 0

Other Assets 414 7 403 6 287 4 254 4

6161.33 100 6463.33 100 7106.33 100 7232.33 100

Operating Liabilities

Accounts Payable 1066 52 1144 49 917 44 1011 46

Accrued Expenses 402 19 413 18 388 19 404 18

Taxes Payabable 5 0 108 5 0 0 0 0

Other Current Liabilities 596 29 679 29 764 37 804 36

2069 100 2344 101 2069 100 2219 100

THE GAP NORDSTROM

OP CASH

A/R

INVENTORY

OTH CURRENT

ASSETS

PPE

INTANG OTH ASST

OP CASH

A/R

INVENTORY

OTH CURRENT

ASSETS

PPE

Comparative Analysis (cont’d)12 13 12 13

Sales 10,877.00 111.7 14497 107.9

Cost of Goods sold 6,221.00 112.6 8173.2 109.2

Gross profit 4,656.00 110.5 6323.8 106.4

Operating expenses

Selling, General & Administrative expenses 3,023.00 111.5 3836.6 110.3

Depreciation, depletion&Amortization 371 115.6 592.3 94.4

Operating income from sales(before tax) 1,262.00 106.6 1438.1 135.1

Taxes

Taxes as reported 436.00 103.2 536.2 135.4

Tax on financial items and other operating income 48.65 120.14 2.73 119.2

Operating income from sales(after tax) 777.35 107.62 874 133.2

Extraordinary Items 0 0 0 0

Discontinued operations 0 0 0 0

Income before extraordinary items & discontinued operations 777.35 107.62 874 133.2

Financing income/expense

Interest expense 139 120 78 119.2

Tax effect(35%) 48.7 120 27.3 119.2

Net interest income/expense 90.3 120.3 50.7 119.2

Noncontrolling interest-inc Acc 0 0 0

Preferred dividends 0 0 0

Savings due to common stock equivalents 0 0 0

Net financing income 81.35 124.83 50.7 119.2

Non-operating income/expense 90.3 120.3 9 133.3

Special Items -13 0 0 0

Operating income(after tax) 773.3 103.09 833 136.3

Comprehensive income 773.3 103.09 833 136.3

NORDSTROM GAP

Financial Ratios

Financial RatiosJan-09 Jan-10 Jan-11 Jan-12 Jan-13

ROCE 0.22042398 0.225311797 0.291421569 0.302359347 0.392190739

RNOA 0.216517748 0.266292192 0.30781493 0.213741316 0.287291865

NBC -0.385069342 -0.00405584 -0.006531532 0.031181533 0.039540369

FLEV -0.023175291 -0.156272746 -0.054411765 0.485419238 0.423403594

Spread 0.168551594 0.262236352 0.301283398 0.182559783 0.247751497

ROCE (definition two) 0.22042398 0.225311797 0.291421569 0.302359347 0.392190739

Asset Turnover 3.389703943 3.440304168 3.800933126 3.555187387 3.799404272

RNOA 0.216517748 0.266292192 0.30781493 0.213741316 0.287291865

PM 0.06387512 0.077403677 0.080984043 0.060120971 0.075614977

Operating Liability Leverage 0.491910775 0.516396998 0.543027475 0.505579951 0.569024574

Return on Operating Assets 0.151722185 0.182419335 0.206526121 0.148682184 0.190355436

Implict Interest 42.16 42.62 41.9 41.38 46.88

RNOA(difinition two) 0.216517748 0.266292192 0.30781493 0.213741316 0.287291865

ROCE(definition three) 0.22042398 0.225311797 0.291421569 0.302359347 0.392190739

Graph for Ratios

0

0.1

0.2

0.3

0.4

0.5

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

ROCE

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

RNOA

0.44

0.46

0.48

0.5

0.52

0.54

0.56

0.58

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

OLLEV

-0.2

0

0.2

0.4

0.6

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

FLEV

Turnover Ratios

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Receivables Turnover - - 143.0634146 57.96414343 49.84394904

Inventory Turnover 5.46965271 5.241702984 5.248304811 5.368160742 5.289653128

Payables Turnover 8.50681474 7.81018981 7.829479769 8.210874704 8.073303167

Days Sales Outstanding - - 2.551316148 6.296996357 7.32285477

Days in Inventory 66.73184192 69.63385776 69.54626553 67.99349303 69.00263423

Days in Payables 42.90677664 46.73381939 46.61867848 44.45324197 45.21073871

Graph for Ratios

0

1

2

3

4

5

6

7

8

Jan-11 Jan-12 Jan-13

Days Sales Outstanding

55

60

65

70

75

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Days in Inventory

35

40

45

50

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Days in Payable

Graph for ATO

• With respect to 1/ATO, which can show the amount of NOA used to generate dollars of sales. it can help us understand the ability of the net operating assets(NOA) to generate sales.

• The overall trend is falling down. Which means the firm is adjusting its asset turnover .In general, the company’s profit ability is increasing.

1/ATO ANALYSIS

Expense ratio

• Expense ratios calculate the percentage of sales revenue that is absored by expense,itshows the company’s revenues and expenses structure.

• Gap used the expense very stable and effictively

Expense ratios analysis

The End

Q&A