Accounting

Financial Statement Analysis

Group Project#2

ACCT3303

 

The specific purposes of this project are:

 

1. Apply to actual companies the basic knowledge and analytical techniques learned from our course.

 

2. Prepare common-size financial statements, comparative financial statements, and various profitability and risk ratios.

 

3. Compare the calculated results with competitors and across different years.

 

4. Summarize the analyses and make investment recommendations.

 

 

You will be analyzing the following firms:

a. Williams-Sonoma, Inc.

b. Pier 1 Imports, Inc.

For these firms, download the most recent annual report (10-K report) to begin your work. In 10-K reports, you can find companies’ basic information, financial statements, footnotes to the financials, and the management discussions and analyses. Please download the 10-K reports from the following web links:

10-K reports (fiscal year 2015) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312516525847/d120289d10k.htm

10-K reports (fiscal year 2014) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312515118009/d851953d10k.htm#tx851953_13

10-K reports (fiscal year 2013) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312514129974/d659151d10k.htm

10-K reports (fiscal year 2015) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312516556025/d133529d10k.htm

10-K reports (fiscal year 2014) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312515153179/d881010d10k.htm#toc881010_13

10-K reports (fiscal year 2013) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312514165673/d678776d10k.htm

For your convenience, I also provided the balance sheet and income statement of each company for fiscal year 2015, 2014, 2013 and 2012 at the end (page 5-8; Table 1-4). Please use them to prepare common-size financial statements and comparative financial statements.

Guidance

 

The required tasks are detailed below:

 

(1)   Prepare common-size balance sheets and income statements for both companies. Note: Compute for the Fiscal year 2015, 2014 and 2013. 

(2)   Prepare comparative analysis (i.e., change of percentage analysis) on income statement and balance sheet for both companies. You should compute for the Fiscal year 2015, 2014 and 2013. 

 

(3)   Prepare ratio analyses (for the Fiscal year 2015, 2014 and 2013 time period) for both companies.  At least, you should include the following ratios in your computations: (1) current ratio, (2) acid-test ratio, (3) receivables turnover, (4) inventory turnover, (5) asset turnover, (6) profit margin on sales, (7) rate of return on assets, (8) rate of return on common stock equity, (9) debt to total assets ratio.

(4)   Comment on the analytical results of the two companies. Your comments should concentrate on the trends across the companies. In addition to contrasting the ratios between the companies, you should interpret the numbers and make suggestions as to why the ratio of one company might be higher/lower than the other.

 (5)   Write a conclusive summary on the firms you have studied. Based upon your conclusions, recommend the better performing firm for potential investment. Your conclusions should be based upon, and specifically reference, the analyses prepared in this report. 

(6) Read sample project to get some ideas.

 

 

 

 

Report Format Requirements: 

 

A. Report body requirements:

 

1. Cover page. List the title of the project, your names, and semester/year. Also please indicate each group member’s contribution to this project. (For example, student A—complete common-size statement; student B –complete financial ratios, etc.)

 

2. Abstract or Executive Summary. This is a separate page. It should cover the purpose of the project, the major findings, and the conclusions/recommendations, in summary form.

 

3. Table of Contents.

 

4. Main body.  Use the following sequence for report content:

a. Introduction to the two companies and to the purpose of the report

b. Analytical section.  This should include all your numerical analyses. This is where you will discuss the results of, comments on, and conclusions about the common-size statements, comparative analysis (i.e., change of percentage analysis), and the ratio analyses for both companies.

c. Comparisons of companies and all other analysis (observations and/or interpretations).  (You may combine b and c if you wish, as long as both are well covered.)

d. Conclusions and recommendation for investment.

 

5. References. List all major reference sources.

 

6. Appendices.

a. Include tables and graphs of your numerical analyses. For both companies, you should report common-size statements, comparative analysis statement, a table of Financial Statement Ratios, and Pro Forma statements. Please see the sample project’s Appendices-- table 1 to table 14 as examples.

b. For reference convenience, assign a title to each separate item, such as Table 1, Exhibit 1, etc. 

 

B. Typesetting requirements:

 

1. Use size 12 font. Times New Roman is preferred.

2. Double space between lines.

3. Number pages in accordance with the APA style guide.

4. One inch on all sides.

5. Do not right justify text.  Use left justify.

6. Minimum length: 8 pages. (Note: You can easily meet the minimum length requirement since you will have a lot of tables in the paper.)

7. The submitted work should be in ONE file with a word or pdf format. An Excel spreadsheet file is NOT acceptable.

 

 

 

Plagiarism 

 

Plagiarism will not be tolerated.  Evidence of plagiarism will result in a grade of “F” to the course and be subject to appropriate disciplines.

 

 

NOTES:

 

· A portion of your grade will be assessed based on the overall report quality, clarity, format, and cohesiveness.

· A FREE RIDER in the group will not be tolerated. However, to report an alleged free rider, you should send me a formal written complaint. You should carefully manage your group over the semester to ensure that no teammate will take the chance of turning into a free rider. Try to contact/manage your teammates frequently and inform me if any member is not willing to participate the group work so we can address this issue ASAP. A free rider will receive his/her group project grades solely based on what he/she has contributed to the projects. If there is a free-rider in your group or a member drops the class, the rest of the group members are still expected to submit a COMPLETE paper.

· Again, the balance sheet and income statements are provided at the end. Please use them to prepare common-size and comparative financial statements.

 

 

 

 

Table 1. Williams-Sonoma, Inc ---- Pro Forma Balance Sheet

Williams-Sonoma, Inc.
Pro Forma BALANCE SHEET
Fiscal Years 2015, 2014, 2013
(In thousands)	FY 2015	FY 2014	FY 2013	FY 2012
ASSETS
Current assets
Cash and cash equivalents	193,647	222,927	330,121	424,555
Restricted cash	0	0	14,289	16,055
Accounts receivable, net	79,304	67,465	60,330	62,985
Merchandise inventories, net	978,138	887,701	813,160	640,024
Prepaid catalog expenses	28,919	33,942	33,556	37,231
Prepaid expenses	44,654	36,265	35,309	26,339
Deferred income taxes, net	0	130,618	121,486	99,764
Other assets	11,438	13,005	10,852	9,819
Total current assets	1,336,100	1,391,923	1,419,103	1,316,772
Property and equipment, net	886,813	883,012	849,293	812,037
Deferred income taxes, net	141,784	4,265	13,824	12,398
Other assets, net	52,730	51,077	54,514	46,472
Total assets	2,417,427	2,330,277	2,336,734	2,187,679
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	447,412	397,037	404,791	259,162
Accrued salaries, benefits and other liabilities	127,122	136,012	138,181	120,632
Customer deposits	296,827	261,679	228,193	207,415
Income taxes payable	67,052	32,488	49,365	41,849
Current portion of long-term debt	0	1,968	1,785	1,724
Other liabilities	58,014	46,764	38,781	26,345
Total current liabilities	996,427	875,948	861,096	657,127
Deferred rent and lease incentives	173,061	166,925	157,856	171,198
Long-term debt	0	0	1,968	3,753
Other long-term obligations	49,713	62,698	59,812	46,463
Total liabilities	1,219,201	1,105,571	1,080,732	878,541
Stockholders’ equity
Preferred stock: $.01 par value; 7,500 shares authorized; none issued	0	0	0	0
Common stock: $.01 par value; 253,125 shares authorized;	896	919	941	977
Additional paid-in capital	541,307	527,261	522,595	503,616
Retained earnings	668,545	701,214	729,043	790,912
Accumulated other comprehensive loss	(10,616)	(2,548)	6,524	13,633
Treasury stock	(1,906)	(2,140)	(3,101)	0
Total stockholders’ equity	1,198,226	1,224,706	1,256,002	1,309,138
Total liabilities and stockholders’ equity	2,417,427	$  2,330,277	2,336,734	2,187,679

Table 2. Williams-Sonoma, Inc --- Pro Forma Statement of Income

Williams-Sonoma, Inc.
Pro Forma STATEMENT OF INCOME
Fiscal Years 2015, 2014,2013,2012
(In thousands)	FY 2015	FY 2014	FY 2013	FY 2012
Net revenues	4,976,090	4,698,719	4,387,889	4,042,870
Cost of goods sold	3,131,876	2,898,215	2,683,673	2,450,394
Gross profit	1,844,214	1,800,504	1,704,216	1,592,476
Selling, general and administrative expenses	1,355,580	1,298,239	1,252,118	1,183,313
Operating income	488,634	502,265	452,098	409,163
Interest (income) expense, net	627	62	(584)	(793)
Earnings before income taxes	488,007	502,203	452,682	409,956
Income taxes	177,939	193,349	173,780	153,226
Net earnings	310,068	308,854	278,902	256,730

Table 3. Pier 1 Imports, Inc ---- Pro Forma Balance Sheet

Pier 1 Imports, Inc.
Pro Forma BALANCE SHEET
Fiscal Years 2015, 2014, 2013, 2012
(in thousands)	FY 2015	FY 2014	FY 2013	FY 2012
ASSETS
Current assets:
Cash and cash equivalents	115,221	100,064	126,695	231,556
Accounts receivable, net	22,639	29,405	24,614	22,309
Inventories	405,859	478,843	377,650	356,053
Prepaid expenses and other current assets	31,175	45,273	47,547	49,016
Total current assets	574,894	653,585	576,506	658,934
Properties and equipment, net	207,633	214,048	183,352	150,615
Other noncurrent assets	36,664	39,251	43,765	47,666
Total assets	819,191	906,884	803,623	857,215
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	72,570	102,762	84,238	58,701
Gift cards and other deferred revenue	64,081	63,002	57,428	51,740
Accrued income taxes payable	6,324	13,505	14,025	25,249
Current portion of long-term debt	2,000	2,000	0	0
Other accrued liabilities	101,712	106,781	110,278	112,437
Total current liabilities	246,687	288,050	265,969	248,127
Long-term debt	200,255	201,426	9,500	9,500
Other noncurrent liabilities	87,492	80,141	78,722	62,457
Total liabilities	534,434	569,617	354,191	320,084
Shareholders’ equity:
Common stock, $0.001 par, 500,000,000 shares authorized	125	125	125	125
Paid-in capital	211,019	222,438	235,637	233,518
Retained earnings	729,537	713,575	660,040	574,206
Cumulative other comprehensive loss	(10,637)	(9,985)	(6,114)	(4,828)
Treasury stock	(645,287)	(588,886)	(440,256)	(265,890)
Total shareholders’ equity	284,757	337,267	449,432	537,131
Total liabilities and stockholders’ equity	819,191	906,884	803,623	857,215

Table 4. Pier 1 Imports, Inc ---- Pro Forma Statement of Income

Pier 1 Imports, Inc.
Pro Forma STATEMENT OF INCOME
Fiscal Years 2015, 2014,2013, 2012
(in thousands)	FY 2015	FY 2014	FY 2013	FY 2012
Net sales	1,892,230	1,884,557	1,791,443	1,704,885
Cost of sales	1,187,250	1,116,076	1,026,180	961,826
Gross profit	704,980	768,481	765,263	743,059
Selling, general and administrative expenses	578,828	594,906	550,890	513,085
Depreciation	50,944	46,304	38,873	30,988
Operating income	75,208	127,271	175,500	198,986
Nonoperating (income) and expenses:
Interest, investment income and other	(237)	(3,391)	(1,721)	(2,757)
Interest expense	12,280	10,260	2,572	743
	12,043	6,869	851	(2,014)
Income before income taxes	63,165	120,402	174,649	201,000
Income tax provision	23,531	45,240	67,118	71,556
Net income	39,634	75,162	107,531	129,444