ADMS 2600 Lecture 3: PQE+Guidelines+for+Reports+and+Presentations+April++2016+(1)
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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:
Williams-Sonoma, Inc.
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 companiesâ 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 2016) for Williams-Sonoma, Inc.
https://www.sec.gov/Archives/edgar/data/719955/000119312517104341/d265187d10k.htm
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 2016) for Pier 1 Imports, Inc.
https://www.sec.gov/Archives/edgar/data/278130/000119312517136345/d343458d10k.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
For your convenience, I also provided the balance sheet and income statement of each company for the most recent years 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 most recent THREE years.
(2) Prepare comparative analysis (i.e., change of percentage analysis) on income statement and balance sheet for both companies. You should compute for the most recent THREE years.
(3) Prepare ratio analyses (for the same THREE year 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) earnings per share, (10) payout ratio, (11) debt to total assets ratio, (12) times interest earned, (13) cash debt coverage ratio, and (14) book value per share.
(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:
Cover page. List the title of the project, your names, and semester/year.
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.
Table of Contents.
Main body. Use the following sequence for report content:
Introduction to the two companies and to the purpose of the report
Analytical section. This should include all your numerical analyses. This is where you will discuss the results of, comments on, and conclusions about the vertical and horizontal common-size statements, comparative analysis (i.e., change of percentage analysis), and the ratio analyses for both companies.
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.)
Conclusions and recommendation for investment.
References. List all major reference sources.
Appendices. Include tables and graphs of your numerical analyses. For reference convenience, assign a title to each separate item, such as Table 1, Exhibit 1, etc.
B. Typesetting requirements:
Use size 12 font. Times New Roman is preferred.
Double space between lines.
Number pages in accordance with the APA style guide.
One inch on all sides.
Do not right justify text. Use left justify.
Minimum length: 8 pages. (Note: You can easily meet the minimum length requirement since you will have a lot of tables in the paper.)
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 âFâ 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 ----Balance Sheet
| Williams-Sonoma, Inc. | ||||
| BALANCE SHEET | ||||
| Fiscal Years 2016, 2015, 2014, 2013 | ||||
| (In thousands) | FY 2016 | FY 2015 | FY 2014 | FY 2013 |
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | $ 213,713 | $ 193,647 | $ 222,927 | 330121 |
| Restricted cash | â | â | â | 14289 |
| Accounts receivable, net | 88,803 | 79,304 | 67,465 | 60,330 |
| Merchandise inventories, net | 977,505 | 978,138 | 887,701 | 813,160 |
| Prepaid catalog expenses | 23,625 | 28,919 | 33,942 | 33,556 |
| Prepaid expenses | 52,882 | 44,654 | 36,265 | 35,309 |
| Deferred income taxes, net | â | â | 130,618 | 121,486 |
| Other assets | 10,652 | 11,438 | 13,005 | 10,852 |
| Total current assets | 1,367,180 | 1,336,100 | 1,391,923 | 1,419,103 |
| Property and equipment, net | 923,283 | 886,813 | 883,012 | 849,293 |
| Deferred income taxes, net | 135,238 | 141,784 | 4,265 | 13,824 |
| Other assets, net | 51,178 | 52,730 | 51,077 | 54,514 |
| Total assets | $ 2,476,879 | $ 2,417,427 | $ 2,330,277 | 2,336,734 |
| LIABILITIES AND STOCKHOLDERSâ EQUITY | ||||
| Current liabilities | ||||
| Accounts payable | $ 453,710 | $ 447,412 | $ 397,037 | 404791 |
| Accrued salaries, benefits and other liabilities | 130,187 | 127,122 | 136,012 | 138,181 |
| Customer deposits | 294,276 | 296,827 | 261,679 | 228,193 |
| Income taxes payable | 23,245 | 67,052 | 32,488 | 49,365 |
| Current portion of long-term debt | â | â | 1,968 | 1,785 |
| Other liabilities | 59,838 | 58,014 | 46,764 | 38,781 |
| Total current liabilities | 961,256 | 996,427 | 875,948 | 861,096 |
| Deferred rent and lease incentives | 196,188 | 173,061 | 166,925 | 157,856 |
| Long-term debt | 1,968 | |||
| Other long-term obligations | 71,215 | 49,713 | 62,698 | 59,812 |
| Total liabilities | 1,228,659 | 1,219,201 | 1,105,571 | 1,080,732 |
| Stockholdersâ equity | ||||
| Preferred stock: $.01 par value; 7,500 shares authorized; none issued | â | â | â | 0 |
| Common stock: $.01 par value; 253,125 shares authorized; | ||||
| 87,325 and 89,563 shares issued and outstanding at | 873 | 896 | 919 | 941 |
| January 29, 2017 and January 31, 2016, respectively | ||||
| Additional paid-in capital | 556,928 | 541,307 | 527,261 | 522,595 |
| Retained earnings | 701,702 | 668,545 | 701,214 | 729,043 |
| Accumulated other comprehensive loss | (9,903) | (10,616) | (2,548) | 6524 |
| Treasury stock â at cost: 20 and 29 shares as of January 29, 2017 and January 31, 2016, respectively | (1,380) | (1,906) | (2,140) | (3,101) |
| Total stockholdersâ equity | 1,248,220 | 1,198,226 | 1,224,706 | 1,256,002 |
| Total liabilities and stockholdersâ equity | $ 2,476,879 | $ 2,417,427 | $ 2,330,277 | 2,336,734 |
Table 2. Williams-Sonoma, Inc --- Statement of Income
| Williams-Sonoma, Inc. | ||||
| STATEMENT OF INCOME | ||||
| Fiscal Years 2016, 2015, 2014,2013 | ||||
| (In thousands) | FY 2016 | FY 2015 | FY 2014 | FY 2013 |
| E-commerce net revenues | $ 2,633,602 | $ 2,522,580 | $ 2,370,694 | $ 2,115,022 |
| Retail net revenues | 2,450,210 | 2,453,510 | 2,328,025 | 2,272,867 |
| Net revenues | 5,083,812 | 4,976,090 | 4,698,719 | 4,387,889 |
| Cost of goods sold | 3,200,502 | 3,131,876 | 2,898,215 | 2,683,673 |
| Gross profit | 1,883,310 | 1,844,214 | 1,800,504 | 1,704,216 |
| Selling, general and administrative expenses | 1,410,711 | 1,355,580 | 1,298,239 | 1,252,118 |
| Operating income | 472,599 | 488,634 | 502,265 | 452,098 |
| Interest (income) expense, net | 688 | 627 | 62 | (584) |
| Earnings before income taxes | 471,911 | 488,007 | 502,203 | 452,682 |
| Income taxes | 166,524 | 177,939 | 193,349 | 173,780 |
| Net earnings | $ 305,387 | $ 310,068 | $ 308,854 | $ 278,902 |
You have been hired as a business analyst by Big Daddyâs Quik-ee Mart. Big Daddy has collected demand data on 3 products that he sells: Gasoline, Milk and Little Mamaâs Chocolate Cookiesâ¢. The data is presented in the tables on the next page. Currently all three of these products are priced at $3.50 per unit. Big Daddy would like you to use this data and your knowledge of the price elasticity of demand to make suggestions about pricing strategies that might increase revenues for the Quik-ee Mart.
There is one problem. When Junior (Big Daddyâs son) collected the data, he forgot to label the columns in the spread sheet, so now there is no way to tell which data goes with which of the 3 goods.
Big Daddy is very well known in the local community, so performing well on this job will guarantee you many more consulting jobs in town. Even though there is an important piece of information missing you must still try to help Big Daddy.
Use the data to calculate the arc elasticity of demand for each product using each pair of prices and quantities. (That is, calculate the arc elasticity between $2.00 and $2.50, between $2.50 and $3.00, etc.).
Given what you know about the price elasticity of demand, can you now guess which set of data belongs to which product? Explain your reasoning.
Assuming that you are correct in your guesses, provide some sales and marketing advice to Big Daddy. What sort of pricing changes could Big Daddy implement to increase total revenue?
Format of your answers:
You should present your conclusions and suggestions to Big Daddy in the form of a memo. Remember when drafting the memo that Big Daddy is a busy business executive. Give him your suggestions, and explain your reasoning, succinctly and in as non-technical terms as possible. Attach an appendix that includes your completed data tables with the arc elasticities, along with a sample calculation showing how the elasticities were found. The appendix can also include any other background material you feel is relevant and include references to any external resources you may have consulted in preparing your report.
Extra Credit:
In addition to the price elasticity of demand, Chapter 3 discusses several other demand elasticities. Might any of these be relevant to this problem? Explain. If possible, suggest additional data that Junior could collect to add to this analysis and what findings you would expect (again, based on your knowledge of gasoline, milk and cookies).
Data for Good 1
| Price | Quantity Demanded | Arc Elasticity |
| $2.00 | 280 | - |
| $2.50 | 260 | -0.3333 |
| $3.00 | 240 | -0.44 |
| $3.50 | 220 | -0.56521 |
| $4.00 | 200 | -0.7143 |
| $4.50 | 180 | -0.8947 |
Data for Good 2
| Price | Quantity Demanded | Arc Elasticity |
| $2.00 | 230 | - |
| $2.50 | 225 | -0.0989 |
| $3.00 | 220 | -0.1236 |
| $3.50 | 215 | -0.1494 |
| $4.00 | 210 | -0.1765 |
| $4.50 | 205 | -0.2048 |
Data for Good 3
| Price | Quantity Demanded | Arc Elasticity |
| $2.00 | 510 | - |
| $2.50 | 413 | -0.9458 |
| $3.00 | 315 | -1.4808 |
| $3.50 | 218 | -2.3659 |
| $4.00 | 120 | -4.3491 |
| $4.50 | 23 | -11.5315 |
*I was able to calculate all of the math (hopefully correct), but am having issues with the guesses; economics has always really stumped me and I seriously get confused about inelasticity and cpuld really use some help figuring that out. I'm also a little confused by what he means by memo, my professor is really vague most of the time.