Module02Solutions - Module 2 E2-33 (15 minutes) a. ANF...

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©Cambridge Business Publishers, 2008 Solutions Manual, Module 2 2-1 Module 2 E2-33 (15 minutes) a. ANF TJX Sales. .................................... $2,021 $14,913 Cost of goods sold . ............ 680 33.6% 11,399 76.4% Gross profit. ......................... 1,341 66.4% 3,514 23.6% Total expenses. ................... 1,125 55.7% 2,904 19.5% Net income. .......................... $ 216 10.7% $ 610 4.1% ANF is a high-end retailer and TJX operates in the value-priced segment of the market. Their respective business models are clearly evident in the gross profit margin. ANF’s gross profit margin is nearly three times that of TJX (66.4% compared to 23.6%). This implies that ANF adds a healthy profit margin to their merchandise sales price. The high-end segment also requires additional personnel, advertising and other operating costs. ANF’s expense margin is also three times higher. On balance, ANF is bringing down to the bottom line, twice the level of net income, 10.7% of sales compared with 4.1% of sales at TJX. b. ANF TJX Current assets. .................... $ 672 48.4% $2,905 57.2% Long-term assets. ............... 715 51.6% 2,170 42.8% Total assets . ........................ $1,387 $5,075 Current liabilities. ................ $ 429 30.9% $2,204 43.4% Long-term liabilities. ........... 288 20.8% 1,124 22.1% Total liabilities. .................... 717 51.7% 3,328 65.6% Stockholders' equity. .......... 670 48.3% 1,747 34.4% Total liabs and equity. ........ $1,387 $5,075 ANF has lower levels of current assets relative to total assets. For clothing retailers, current assets are primarily cash and inventories. If the two companies have about the same levels of cash, we would conclude that ANF has less inventory on hand. This makes sense given that TJX has
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©Cambridge Business Publishers, 2008 Financial Accounting for MBAs, 3rd Edition 2-2 discount-type stores chock full of merchandise. Tangible long-term assets consist of leasehold improvements and equipment. The two companies’ ratios of long-term assets to total assets are slightly different, in part because TJX has a large goodwill (intangible) asset included with its long- term assets. c. ANF has a greater proportion of stockholders’ equity in its capital structure (48.3% compared to 34.4% at TJX). This means that TJX relies more on debt to fund its operations than ANF. This is evident in both a higher percentage of current and long-term liabilities as a percent of the total. Current liabilities are typically non-interest bearing and self- liquidating (e.g., paid from the cash from inventory sales). Long-term debt, however, is typically interest bearing and requires periodic payments of interest and principal. The debt payment requirements add an element of risk and we might conclude that TJX is the riskier company.
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©Cambridge Business Publishers, 2008 Solutions Manual, Module 2 2-3
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©Cambridge Business Publishers, 2008 Financial Accounting for MBAs, 3rd Edition 2-4 E2-36 (30 minutes) a. TJX VZ Sales. ....................................... $14,913 $75,112 COGS. ...................................... 11,399 76.4% 25,469 33.9% Gross profit. ............................ 3,514 23.6% 49,643 66.1% Total expenses. ...................... 2,904 19.5% 42,246 56.2% Net income. ............................. $ 610 4.1% $ 7,397 9.8% TJX is a value-priced clothing retailer whose main expense is cost of sales. VZ operates in the highly capital intensive telecom industry. The difference in their respective business models is clearly evident in the level of gross profit and operating expenses. VZ’s gross profit margin is over 2.5 times that of TJX. This does not imply that VZ is a better managed company. VZ’s industry is very capital intensive, and the industry requires a significant
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This note was uploaded on 05/12/2010 for the course ACG 5065 taught by Professor Asare during the Spring '08 term at University of Florida.

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Module02Solutions - Module 2 E2-33 (15 minutes) a. ANF...

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