ACC501: Introduction to Financial Accounting
Module 1 Case Assignment
For investors to objectively analyze and rate companies they need to have access to certain financial information in order to make informed business decisions. Key financial figures such as Statement of Income, Balance Sheet Statements, and Cash Flow Statements are used to make these comparisons. To ensure that companies are reporting the same financial information several accounting and auditing standards have been created and must be followed. In the follow paper two companies, Abercrombie and Fitch and Hennes & Mauritz, will be evaluated based on their financial statements in a goal to determine which company is more profitable. Background information about the two companies will be presented; their annual statements will be compared and contrasted; and finally their annual statements will be analyzed to determine which one is more profitable. Background Information
Abercrombie and Fitch
Abercrombie & Fitch Co. (A&F), was incorporated in 1996. They are a specialty retailer that operates stores and direct-to-consumer operations selling casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories for men, women and kids under the brands Abercrombie & Fitch, Abercrombie kids, Hollister and Gilly Hicks (Reuters, n.d.). A&F is known for their racy and often controversial advertising campaigns which depict semi-nude men and women. Their primary market demographic is men and women between the ages of 18 to 22 (Four Iconic Businesses, n.d.). As of January 28, 2012, A&F operates 1,045 stores in North America, Europe and Japan. Of the 1,045 stores a majority, 946 stores, are located in located in the United States, while the remaining 99 stores are located internationally.
Hennes & Mauritz
The Swedish clothing retailer Hennes & Mauritz (H&M), is currently the second largest global clothing retailer. It opened its first women's clothing store in 1947 as Hennes (Swedish for "hers"); it later bought the hunting and men's clothing store Mauritz Widforss. Their primary market demographic is men and women between the ages of 18 and 45 (Hoovers, n.d.). They target the hip and modish and design cheap yet chic clothing. The company also designs children's apparel and its own brands of cosmetics. As of November 30, 2011 there are 2,472 retail stores in 32 countries under the brands H&M, COS, Monki, Weekday and Cheap Monday. H&M’s growth target is to increase the number of stores by 10–15 percent per year, and at the same time increase sales in comparable units (Facts About H&M, n.d.). Analyzing Annual Statements
The annual statements for these two companies consisted of at a minimum of a Statement of Account, Balance Sheet Statement, and Cash Flow Statement. Although the businesses are headquartered in different countries and their financial statements follow different accounting and auditing standards, there were several similarities outlined below. Additionally, there were differences that are worth noting as well. Similarities
Both of the annual statements report their financial information in the company’s local currency and included the statement of income, consolidated statement of income, and balance sheet. In each of the reports the number of stores opened, closed, and total was presented to the reader. Lastly, each report contained a five year summary which was useful to easily identify annual growth in various key sections of the reports. While there were some similarities, there seemed to be more differences as will be explored in the next section. Differences
The main difference I found was in the way that each report was presented to the reader. H&M read similar to an investor report and detailed eight pages...