A&P Fact Case
ACC411 Financial Statement Analysis
“FACt.”Case Report
The Great Atlantic & Pacific Tea Company
1. Problem & Objective
The Great Atlantic & Pacific Tea Company, Inc. (A&P) suffered from continued loss on the net income from 2000 to 2003, which caused a general concern on its high risk of bankruptcy. However, conflicting with analysts’ estimation, the company’s third-quarter financial results surprisingly exceeded their expectation, and stock price rose 23% to $9.28 per share on six times average daily trading volume. At the same time, there is concern that shareholders failed to recognize the real performance of A&P, and they simply used the financial results to forecast the future of the company. However, financial reports can be manipulated and give wrong signals.
Our objective is to dig out more information from A&P’s financial reports and make suitable recommendations to investors/analysts/debt holders through further analysis of its business strategy and financial ratios by the end of 2003. 2. Frame & Analysis
As of January 2004, A&P operated approximately 643 stores in 11 states, covering various areas in food market. The supermarket business was highly competitive in terms of low profit margins on sales, and A&P had to compete on economies of scale through increasing volume of sales and store locations to maximize its profits. In addition, A&P was also challenged by other supermarkets, such as Wal-Mart, which expanded rapidly in large scale.
In the third quarter of 2003, A&P’s reported results that demonstrated improvement compared with the third quarter of fiscal 2002. Sales at the end of November 2003 increased by 4.9% compared with sales ended November 2002. In addition, the company’s gross margin increased, while store operating, general and administrative expense slightly increased. In 2003, the company divested multiple assets, selling nine supermarkets in northern New England and
“FACt.”Case Report
The Great Atlantic & Pacific Tea Company
1. Problem & Objective
The Great Atlantic & Pacific Tea Company, Inc. (A&P) suffered from continued loss on the net income from 2000 to 2003, which caused a general concern on its high risk of bankruptcy. However, conflicting with analysts’ estimation, the company’s third-quarter financial results surprisingly exceeded their expectation, and stock price rose 23% to $9.28 per share on six times average daily trading volume. At the same time, there is concern that shareholders failed to recognize the real performance of A&P, and they simply used the financial results to forecast the future of the company. However, financial reports can be manipulated and give wrong signals.
Our objective is to dig out more information from A&P’s financial reports and make suitable recommendations to investors/analysts/debt holders through further analysis of its business strategy and financial ratios by the end of 2003. 2. Frame & Analysis
As of January 2004, A&P operated approximately 643 stores in 11 states, covering various areas in food market. The supermarket business was highly competitive in terms of low profit margins on sales, and A&P had to compete on economies of scale through increasing volume of sales and store locations to maximize its profits. In addition, A&P was also challenged by other supermarkets, such as Wal-Mart, which expanded rapidly in large scale.
In the third quarter of 2003, A&P’s reported results that demonstrated improvement compared with the third quarter of fiscal 2002. Sales at the end of November 2003 increased by 4.9% compared with sales ended November 2002. In addition, the company’s gross margin increased, while store operating, general and administrative expense slightly increased. In 2003, the company divested multiple assets, selling nine supermarkets in northern New England and