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
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 |