Financial Statement Analysis - the Gap

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  • Topic: Generally Accepted Accounting Principles, Gap, Banana Republic
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Financial Accounting

Company Financial Statement Analysis Assignment:

I. Company’s Business and Economic Environment

Gap Inc., founded in 1969 in San Francisco, CA, is a clothing and accessories retailer for men, women and kids. It started as a single store, and nowadays operates more than 3,000 stores with more than 130,000 employees worldwide.

Gap Inc owns the following brands: The Gab, babyGap, GapKids, and GapBody, along with Old Navy, Banana Republic, Piperlime and Athleta.

II. Company Evaluation

The Gap’s performance -as we may review it with their ROE- has been consistently increasing for the last 3 years (2008-2010). Starting from a 20% then increasing up to 26%. This efficiency for profits from the equity is attractive to the stockholders, especially for its growth over the last periods.

In regards of the DuPont ratio components, very similar result we can see as to the ROE. Both Gap’s Efficiency and Profitability ratios show an increase over the stated periods. Gap is progressing in having almost a 9% profit from every dollar sold. And for its use of its assets, the turnover ratio shows a really good and rising efficiency, since the company has great expenditures for all of their global operations and presence.

The financial leverage has a different trend. It was raising the former 2 periods, but suffered a decrease for 2010, falling ever further then the low in 2008. 1.68 dollars of assets are employed for each dollar of stockholder investment, a decrease of 6% compared to the previous year/period. This is a nice debt decrease for the size of this corporation.

Additionally, the Gross Profit Margin seems stable from the previous periods. The important expenses for this kind of company, should be merchandise inventory and marketing (image mostly), but they are not detailed in their reports.

Since The Gap and all of its brands business’ is retail clothing...
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