Chapter 4 Variables and the Economic State

7/21/2019 Chapter 4 Variables and the Economic State

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Just-For-Feet – Page 20

Solution to Just For Feet, Inc.: Chapter 2

Just For Feet, Inc. Financials and Financial Ratios

ASSETS 30-Jan-99 3-Jan-9!"as# and e$ui%alents &2,'2 &!2,'90Accounts recei%a(le !,!)* *,!'0+erc#andise in%entor 399,90 20,2!t#er !,302 ,)09Total "urrent Assets ''9,'90 3,)Pro/ert and E$ui/ent, net 0,*92 9',*291oodill, net ),0!' 3,0t#er !,230 ,**0Total Fied Assets 239,90 3),!*

Total Assets !9,39 ''!,3*2

4IA5I4ITIES A67 E8IT:S#ort-ter (orroings 90,)Accounts /aa(le 00,322 *,2Accrued e/enses 2',!29 9,292Incoe taes ,33S#ort-Ter 7e;erred incoe taes 902"urrent aturities ,39 3,222Total "urrent 4ia(ilities 32,92 **,)04ong-ter o(ligations 2,203 ,'

7e;erred lease rentals 3,2 ),224ong-Ter 7e;erred incoe taes ,33 )0'Total 4ong Ter 4ia(ilities 230,99! 2',*2"oon stoc< 3 3Paid-in ca/ital 2'9,*90 2!,Retained earnings ),3 '9,'*Total S#are#olders= E$uit 32*,)0 29,0!'Total 4ia(ilities !9,39 ''!,3*2




STATE+E6T F EAR6I61S Fiscal 99! Fiscal 99) 6et sales ))',!3 ')!,3!"ost o; sales '*2,330 2)9,!1ross /ro;it 322,*33 9!,!22Franc#ise ;ees, roalties, etc ,299 ,0

/erating e/ensesStore o/erating 232,*0* 39,*9Store o/ening costs 3,9 ,)2!Aorti>ation o; intangi(les 2,0)2 ,2001eneral and adinistrati%e 2',3' !,0'0Total o/erating 2)2,*!) *,2)/erating incoe *,2'* 3',29Interest e/ense -!,0*9 -,''Interest incoe '3 ,3)0Earnings (e;ore incoe taes '3,329 3',220Pro%ision o; incoe ta ,! 2,!)

6et earnings 2,'! 2,'03S#ares outstanding 30,)3) 29,*7iluted 3,!*2 30,'0

STATE+E6T F "AS? F4@S Fiscal 99! Fiscal 99) 6et earnings 2,'! 2,'03Adustents to reconcile net earnings to net cas# used ( o/erating acti%ities7e/reciation and aorti>ation ,29 !,)!37e;erred incoe taes 2,00 2,9'7e;erred lease rentals 2,** 2,"#ange in assets and lia(ilitiesAccounts recei%a(le -2,)9* -!,9!+erc#andise in%entor -)0,9 -*,t#er assets -!,22! -*,'3Accounts /aa(le 3',3! ),'9*Accrued e/enses ),33 2,2'Incoe taes -! *'3 6et cas# used ( o/erating acti%ities -!2,0)0 -2,3!' 6et cas# used ;or in%esting acti%ities -)9,!3 -32,0) 6et cas# /ro%ided ( ;inancing acti%ities 9,)* 2,* 6et BdecreaseC increase in cas# and cas# e$ui%alents -)0,0)! -*,29*




RATIS 99! 99)"urrent ratio 3.39 2.008uic< ratio 0.3) 0.) 6et or<ing ca/ital, 6@" 3,)9! **,' 6et li$uid (alance, 645 *,))3 -,399

@or<ing ca/ital re$uireents, @"R 3,02* ,!0@"RDSales 0.'0 0.3* Bsiilar"as# ;lo ;ro o/erations -!2,0)0 -2,3!' to @.T."as# con%ersion /eriod 2*0.3 2'.22 1rant7as in%entor #eld, 7I? 322.9 2!.!! ""P in7as sales outstanding, 7S !.!9 2.0! t#e earl7as /aa(les outstanding, 7P !0.9* .)' )0=sC"urrent li$uidit inde 0.00'*Total assets D total sales, ADS 0.!!9) 0.93)A;ter-ta /ro;it ratio, 0.03'' 0.0'')7i%idend /aout ratio, d 0 0

7e(t to e$uit ratio, 7DE 0.)092 0.093Sustaina(le grot# rate, g ).0) *.*0Actual sales grot# rate, g .!9

a.) Current ratio versus quick ratio

T#e current ratio increased /riaril due to t#e signi;icant increase in in%entor.T#e $uic< ratio ;ell (ecause current assets ot#er t#an in%entor ;ell relati%e to t#eslig#t decline in current lia(ilities.

b.) Discussion of working capital cycle

7as in%entor #eld increased ;ro 2! das in ;iscal 99) to 322 das in 99!.7as sales outstanding decreased ;ro 2 das to 9 das. 7as /aa(lesoutstanding increased ;ro ) das to ! das. T#us t#e cas# con%ersion /eriodincreased ;ro 2' das to 2*0 das.

c.) Ability to pay current obligations

T#e co/an=s o/erations generated a de;icit cas# ;lo eac# o; t#e to ears#ic# e/lains t#e dindling cas# (alance.

d.) Solvency and liquidity positions

@#ile t#e current ratio increased ;ro 2 to 3.39, t#is increase can (e attri(uted tot#e increased in%entor and not to increased li$uidit. T#e current li$uidit indeis a//roiatel >ero #ic# indicates t#at t#e co/an #as no li$uid resources toco%er currentl aturing de(t.

e.) The sustainable growth rate

Fro 99) to 99!, sales gre alost 2. ?oe%er t#e sustaina(le grot# ratecalculated using ear-end 99) ;igures as onl !.. To ;inance t#is ecess




grot#, t#e co/an=s de(t-to-e$uit ratio increased in 99! to . ;ro a le%elo; .) in 99).

f.) Conclusions

@#ile earnings increased and t#e co/an=s current ratio increased ;ro 99) to99!, t#e co/an=s o/erations generated an increasing de;icit cas# ;lo le%elG

and t#e co/an=s current li$uidit inde s#os a lac< o; an li$uid resourcesrelati%e to t#e current le%el o; de(t due. T#e co/an is in a signi;icant li$uiditcrisis.

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Chapter 4 Variables and the Economic State