Hawaii Pacific University

Financial Statement Analysis

by

Marion Weiler

TABLE OF CONTENTS

INDUSTRY ANALYSIS 3

COMPANY ANALYSIS 3

Nordstrom 3
Gap Inc. 4
Abercrombie & Fitch 4

ACCOUNTING POLICIES 4

Depreciation Method
Inventory Method
Allowances
Tax Accounting
Dividend policy
Revenue Recognition
Goodwill
Long term investments
Pensions 4

QUALITATIVE EVALUATION 7

Profitability
Assets Utilization/ Liquidity
Solvency

LIMITATIONS 11

RECOMMENDATIONS 11

INDUSTRY ANALYSIS

The companies we selected are from the SEC Industry group 5651-Retail Clothing stores. This industry has a variety of stores ranging in age, distribution, and reputation. The companies we will financially analyze are Nordstrom, Gap Inc. and Abercrombie & Fitch. These three businesses represent the variety which the clothing industry contains. This report will consider and examine various financial aspects of our companies. By analyzing key figures from financial statements, we will be able to compare key issues between the companies. Such issues include liquidity, leverage, profitability, overall financial standing and accounting methods implemented. First we will begin with a brief description of each company.

COMPANY ANALYSIS

Nordstrom

Nordstrom was founded in 1901 by John W. Nordstrom. His philosophy was to offer customers the best possible service, selection, quality and value. The company is committed to the idea of which it began with, earning trust form customers one at a time. Nordstrom created its fashion departments to fit individual′s lifestyles. They currently have five channels of operation: full line stores, off/price stores, boutiques, catalog and the internet. Nordstrom began as a shoe store. In the 1960s it was the largest shoe chain in the US. Toward the mid/1960s they added clothing to become the fashion retailer it is today. Recent goals of Nordstrom include driving top-line growth, implementing a new perpetual inventory system and to continue lowering expense levels as a percentage of sales.

The Gap Inc.

This company was founded by Donald and Doris Fisher in 1969. Today it is one of the largest specialty retailers with three of the most recognized names: Gap, Banana Republic and Old Navy. The company employees over 165,000 people and has about 4,200 stores in the US, UK, Canada, France, Japan and Germany. The Gap is focusing on their international locations and continual expansion of company owned and operated stores. They are committed to monitor and improve the clothing production factories conditions overseas. The Gap continues to evolve and adopt good corporate governance revolving on conducting business in a responsible, honest and ethical matter (www.gap.com).

Abercrombie & Fitch

A & F was introduced in 1997 and spun off The Limited in 1998. It is a leading specialty retailer encompassing three concepts: Abercrombie & Fitch, Abercrombie and Hollister Co. The company focuses on high quality merchandise to compliment a casual American lifestyle, while targeting age′s 18-college. Abercrombie & Fitch claims their most important strategy: building their brands. Presently they are focusing on developing their women′s and girls departments. In 2002 they grew rapidly opening 112 new stores whereby at the end of the year the company had 597 locations nationwide (www.abercrombie.com).

ACCOUNTING POLICIES

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