The

On Style
Financial
Ratios

We usually identify with a specific fashion trend that defines our

time. Tight jeans, baggy pants, leather jackets, spandex, these
are some of the memorable trends that had dressed up
generations of stylish people.

It was founded in 1969 byThe

Donald
Doris F.known
Fisher as
andGap
is headquartered
Gap,Fisher
Inc., and
commonly
Inc. or Gap, inis San
an
Francisco, California. TheAmerican
company multinational
operates six clothing
primary and
divisions:
the namesake
accessories
retailer. banner,
Banana Republic, Old Navy, Piperlime, Intermix, and Athleta.

Banana Republic, a small safari-themed clothing retailer, was purchased by Gap in 1983
and was rebranded as an upscale clothing retailer in the late 1980s. Old Navy was
launched in 1994 as a value chain with specialty flair. Forth & Towne, the company's fourth
traditional retail concept, was launched on August 24, 2005, featuring apparel targeted
toward women 35 years and older. On February 26, 2007, after an 18-month trial period, it
was discontinued, and the 19 stores were closed. A fifth brand, the online clothing and
accessories retailer Piperlime, was created in 2006. A sixth brand, Athleta, a women's
athletic wear line, was added in 2009. Intermix, a multi-brand fashion retailer founded in
1993, was acquired by Gap Inc in 2012
The signature, popular among the younger set, was
originally an exclusive retailer for Levis until the shop
started to sell its own upscale jeans at the expense of
Levis, seen by many as a mature denim brand worn by
someone elses father. Fashion is the function of youth,
which makes The Gap richer than Levis.
On October 6, 2010, in an effort to establish a
contemporary presence, Gap introduced a new logo. It
was designed with the Helvetica font and reduced the
prominence of the brand's iconic blue box. After much
public outcry, the company reverted to its previous "blue
box" logo on October 12, after less than a week in use.
Marka Hansen, the executive who oversaw the logo
change, resigned February 1, 2011.
After this situation of the logo the company started to have some fluctuations on their
performance, and to evaluate this fluctuations we are going to use the financial ratios with
the financial statement information.

First we have the financial information from the years 2012 to 2015.

The Gap, Co.

Annual Income Statement Values
Year 2012-2015
Period Ending:
Total Revenue
Cost of Revenue
Gross Profit
Period Ending:
Research and
Development
Sales, General
and Admin.
Non-Recurring Items
Other Operating
Items
Operating Income
Add'l
income/expense
tems
Earnings Before
Interest and Tax
Interest Expense
Earnings Before Tax
Income Tax
Minority Interest
Equity Earnings
/Loss
Unconsolidated
Subsidiary
Net Income-Cont.
Operations
Net Income
Net Income
Applicable to
Common
Shareholders

1/31/2015
$16,435,000

2/1/2014
$16,148,00
0
$10,146,000
$9,855,000
$6,289,000
$6,293,000
Operating Expenses
1/31/2015
2/1/2014
$0
$0

2/2/2013
$15,651,000
$9,480,000
$6,171,000

1/28/2012
$14,549,00
0
$9,275,000
$5,274,000

2/2/2013
$0

1/28/2012
$0

$0

$0

$0

$3,836,000

$0
$0

$0
$0

$0
$0

$0
$0

$2,083,000
$5,000

$2,149,000
$5,000

$1,942,000
$6,000

$1,438,000
$5,000

$2,088,000

$2,154,000

$1,948,000

$1,443,000

$75,000
$2,013,000
$751,000
$0
$0

$61,000
$2,093,000
$813,000
$0
$0

$87,000
$1,861,000
$726,000
$0
$0

$74,000
$1,369,000
$536,000
$0
$0

$1,262,000

$1,280,000

$1,135,000

$833,000

$1,262,000
$1,262,000

$1,280,000
$1,280,000

$1,135,000
$1,135,000

$833,000
$833,000

Now we have the next statement that is the balance sheet that is a financial statement that
summarizes a company's assets, liabilities and shareholders' equity at a specific point in
time. Here we have the same comparisons from the year 2012 to the 2015.

The Gap, Co.

Balance Sheet
Year 2012-2015
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Current Assets
Cash and Cash
Equivalents

$1,515,000

$1,510,000

$1,460,000

$1,885,000

Short-Term
Investments

$0

$0

$50,000

$0

Net
Receivables

$0

$0

$0

$0

Inventory

$1,889,000
$913,000

$1,928,000
$992,000

$1,758,000
$864,000

$1,615,000
$809,000

$4,317,000

$4,430,000

$4,132,000

$4,309,000

Other Current
Assets
Total Current
Assets

Long-Term Assets
Long-Term
Investments
Fixed Assets
Other Assets
Total Assets

$0

$0

$0

$0

$2,773,000
$600,000
$7,690,000

$2,758,000
$661,000
$7,849,000

$2,619,000
$719,000
$7,470,000

$2,523,000
$590,000
$7,422,000

Current Liabilities
Accounts
Payable

$2,213,000

$2,420,000

$2,344,000

$2,069,000

Short-Term Debt /
Current Portion of
Long-Term Debt

$21,000

$25,000

$0

$59,000

Total Current
Liabilities
Long-Term
Debt
Other
Liabilities
Total
Liabilities

$2,234,000

$2,445,000

$2,344,000

$2,128,000

$1,332,000

$1,369,000

$1,246,000

$1,606,000

$1,141,000

$973,000

$986,000

$933,000

$4,707,000

$4,787,000

$4,576,000

$4,667,000

Common
Stocks
Capital Surplus
Retained
Earnings
Treasury Stock

$21,000

$55,000

$55,000

$55,000

$0
$2,797,000

$2,899,000
$14,218,000

$2,864,000
$13,259,000

$2,867,000
$12,364,000

$0
$165,000
$2,983,000
$7,690,000

($14,245,000)
$135,000
$3,062,000
$7,849,000

($13,465,000)
$181,000
$2,894,000
$7,470,000

($12,760,000)
$229,000
$2,755,000
$7,422,000

Stock Holders Equity

Other Equity
Total Equity
Total Liabilities
& Equity

In the cash flows of The Gap we found that the company had a negative Net Cash Flow in
the year 2013 and now the company is currently recovering from this fall that had on that
year.

Period Ending:
Net Income

1/31/2015
$1,262,000

The Gap, Co.

Cash Flows
Year 2012-2015
2/1/2014
2/2/2013
$1,280,000
$1,135,000

1/28/2012
$833,000

Depreciation

Net
Income
Adjustments
Accounts
Receivable
Changes
in
Inventories
Other
Operating
Activities
Liabilities

NetCash FlowOperating
Capital
Expenditures
Investments
Other
Investing
Activities

Net
Cash
FlowsInvesting
Sale and Purchase
of Stock
Net Borrowings
Other
Financing
Activities
Net Cash FlowsFinancing
Effect
of
Exchange Rate

NetCash Flow

$500,000
$118,000

Cash Flows-Operating Activities

$470,000
$483,000
$119,000
$86,000

$506,000
$118,000

$0

Changes in Operating Activities

$0
$0

$0

($9,000)

($193,000)

($143,000)

$4,000

$240,000

($44,000)

($44,000)

($101,000)

$18,000
$2,129,000

$73,000
$1,705,000

$419,000
$1,936,000

$3,000
$1,363,000

Cash Flows-Investing Activities

($670,000)
($659,000)

($548,000)

($714,000)
$0
$118,000

$50,000
($4,000)

($50,000)
($135,000)

$100,000
($6,000)

($596,000)

($624,000)

($844,000)

($454,000)

Cash Flows-Financing Activities

($1,141,000)
($882,000)
($856,000)

($2,030,000)

($21,000)
$0

$144,000
($1,000)

($419,000)
$0

$1,662,000
$0

($1,507,000)

($1,004,000)

($1,481,000)

($602,000)

($21,000)

($27,000)

($36,000)

$17,000

$5,000

$50,000

($425,000)

$324,000

The Liquidity ratios in this company are going to help us on have a major measure of
financial health. A company's liquidity is its ability to meet its near-term obligations.
The ratios start by the Current Ratio that is the most basic liquidity test. It signifies a
company's ability to meet its short-term liabilities with its short-term assets. A current ratio
greater than or equal to one indicates that current assets should be able to satisfy nearterm obligations.
Current Ratio = (Current Assets) / Current Liabilities.

Liquidity Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Current Ratio

193%

181%

176%

202%

The quick ratio is a tougher test of liquidity than the current ratio. It eliminates certain
current assets such as inventory and prepaid expenses that may be more difficult to
convert to cash.
Quick Ratio = (Cash + Accounts Receivable + Short-Term or Marketable Securities) /
(Current Liabilities)

Liquidity Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Quick Ratio

109%

102%

101%

127%

Profitability Ratios
How good is The Gap at running its business? Does its performance seem to be getting
better or worse? The Gap is making any money? How profitable is The Gap compared
with its competitors? All of these very important questions can be answered by analyzing
profitability ratios of this company, starting with the Gross Margin.
Gross margin is simply the amount of each dollar of sales that a company keeps in the
form of gross profit, and it is usually stated in percentage terms. The higher the gross
margin, the more of a premium a company charges for its goods or services.
Gross Margin = (Gross Profit) / (Sales)

Profitability Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Gross Margin

38%

39%

39%

36%

The Operating margin captures how much a company makes or loses from its primary
business per dollar of sales.
Operating Margin = (Operating Income or Loss) / Sales.

Profitability Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Operating Margin

13%

13%

12%

10%

Net Profit Margin= Profit after Taxes/ Revenues

Profitability Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Net Profit Margin

8%

8%

7%

6%

Return on Equity (ROE). Return on equity is a straightforward ratio that measures a

company's return on its investment by shareholders.
Return on Equity = (Net Income) / (Average Shareholders' Equity)

Financial Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

After Tax ROE

42%

42%

39%

30%

Return on Assets= Net Income after Taxes/Total Assets

Financial Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

After Tax ROA

16%

16%

15%

11%

Leverage Ratios
Debt Ratio= Total Debt/ Total Assets

Financial Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Debt Ratios

61%

60%

61%

63%

Debt to Equity Ratio= Total Debt/ Total Equity

Financial Ratios

Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Debt to Equity Ratio

158%

156%

158%

169%

Times Interest Earned = EBIT/Interest Expense

Financial Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Times Interest Earned

27.84

35.31

22.39

19.5

Assets Utilization
Average Sales per Day
Financial Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Average Sales per Day

45,652.78

44,855.5

43,475

40,413.88

2/2/2013

1/28/2012

Average Collection Period= Accounts Receivable/Average Sales per Day

Financial Ratios
Period Ending:

1/31/2015

2/1/2014

Average Collection Period

0
0
0
0
Its 0 because The Gap does not have accounts receivable account on its functions.
Inventory Turnover
Inventory Turnover=COGS / Average Inventory

Financial Ratios
Period Ending:

1/31/2015

2/1/2014

2/2/2013

1/28/2012

Inventory Turnover

5.37

5.11

5.39

5.74