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Module 2-Foot Locker, Inc.
Taylor Blaney
Enterprise Operations vs. Financing Activities◦ Enterprise Operations- business activities that are
the purpose of the business◦ Financing Activities- borrowing and lending to aid
business purpose Reformulation
◦ Separates income, assets, and liabilities of enterprise vs. financing
◦ Necessary step to find NEA and EPAT and to forecast future NEA and EPAT
Module 2-Overview
Finding which assets and liabilities are part of the enterprise operations
Threshold for cash is typically 2% of net sales
Some classes may have both enterprise and financing activities involved in them, typically included if some enterprise activity can be assumed
Net Enterprise Assets-NEA
Foot Locker, Inc. Balance Sheet
Included in Enterprise Assets:
Foot Locker, Inc. Balance Sheet-Cont.
Account 2012 2011 2010
Cash (2% of sales) 123.64 112.46 100.98
Inventories 1167 1069 1059
Other Current Assets 268 159 179
Property and Equipment
490 427 386
Deferred Taxes 257 284 296
Goodwill 145 144 145
Other Intangible Assets
40 54 72
Other Assets 72 62 63
TOTAL 2562.64 2311.46 2300.98
Foot Locker, Inc. Balance Sheet
Included in Enterprise Liabilities:
Foot Locker, Inc. Balance Sheet-Cont.
Account 2012 2011 2010
Accounts Payable 298 240 223
Accrued and Other Liabilities
338 308 266
Other Liabilities 221 257 245
TOTAL 857 805 734
Subtract Enterprise Liabilities from Enterprise Assets to get Net Enterprise Assets-NEA
Final NEA
Account 2012 2011 2010
Enterprise Assets 2562.64 2311.46 2300.98
Enterprise Liabilities 857 805 734
NEA Total (EA-EL) 1705.64 1506.46 1566.98
NFL is the amount of financial assets less the financial liabilities that a company has in a given year
Foot Locker, Inc.’s NFL:
Net Financial Liabilities-NFL
Accounts 2012 2011 2012
Assets
Cash and Cash Equivalents
756.36 738.54 595.02
Short-Term Investments 48 0 0
Liabilities
Long-Term Debt 133 135 137
TOTAL (Assets-Liabilities) 671.36
603.54
458.02
Foot Locker, Inc. Balance Sheet
To check if work is correct take NEA and add or subtract Net Financial Assets or Liabilities, total should equal stockholders equity section
Reformulation Check
Account 2012 2011 2010
NEA 1705.64 1506.46 1566.98
NFA 671.36 603.54 458.02
Total (NEA+NFA)
2377 2110 2025
Stockholder’s Equity
2377 2110 2025
Involves income items that are associated with enterprise operations
Take items from the statement of earnings to compute
Adjusted for tax that was due to financing activities
Enterprise Profit After Tax-EPAT
Foot Locker, Inc. Statement of Operations
Income Statement Item
2012 2011 2010
Sales 6,182 5,623 5,049
Cost of Sales (4,148) (3,827) (3,533)
Selling, General and Administrative Expenses
(1,294) (1,244) (1,138)
Depreciation and Amortization
(118) (110) (106)
Impairment Charges (12) (5) (10)
Other Income 2 4 4
TOTAL Enterprise Earnings
612 441 266
Computation of Enterprise Earnings
Note: Leave out Interest Expense as a financing expense
Must separate out the amount of income tax that is allocated to enterprise operations vs. financing activities
Use a 37% tax rate to allocate amount of tax attributed to financing activity
The only financing activity on the statement of earnings was interest expense
Income Tax on Enterprise Operations
Calculation of earnings from continuing operations enterprise vs. financing (in millions)
2012Earnings from
continuing operations
Income taxes on continuing
operations (37%)
Earnings from continuing
operations after tax
Enterprise 612 211.85 400.15
Financing (5) (1.85) (3.15)
Total Reported 607 210 396.978
2011Earnings from
continuing operations
Income taxes on continuing
operations (37%)
Earnings from continuing operations
Enterprise 441 159.22 281.78
Financing (6) (2.22) (3.78)
Total Reported 435 157 278
Calculation of earnings from continuing operations enterprise vs. financing (in millions), cont.
2010Earnings from
continuing operations
Income taxes on continuing
operations (37%)
Earnings from continuing operations
Enterprise 266 91.33 174.67
Financing (9) (3.33) (5.67)
Total Reported 257 88 169
Calculation of earnings from continuing operations enterprise vs. financing (in millions), cont.
Income Statement Item
2012 2011 2010
Sales 6,182 5,623 5,049
Cost of Sales (4,148) (3,827) (3,533)
Selling, General and Administrative Expenses
(1,294) (1,244) (1,138)
Depreciation and Amortization
(118) (110) (106)
Impairment Charges (12) (5) (10)
Other Income 2 4 4
Income Taxes allocated to continuing enterprise operations
(211.85) (159.22) (91.33)
EPAT 400.15 281.78 174.67
Computation of Enterprise Profit After Tax-EPAT
2012 2011 2010
Interest Expense (5) (6) (9)
Income tax Benefit allocated to
financing activities
1.85 2.22 3.33
Financing Expense After Tax (FEAT)
(3.15) (3.78) (5.67)
Computation of Financing Expense After Tax-FEAT
• The part of earnings that is not attributable to enterprise activities, these are the financing expenses
After calculating EPAT and FEAT you can check to see if calculations were correct
EPAT= Enterprise Profit After Tax FEAT= Financing Expense After Tax To check, subtract FEAT from EPAT, the total
should equal Net Income on statement of earnings
Checking Work
2012 2011 2010
EPAT 400.15 281.78 174.67
FEAT (3.15) (3.78) (5.67)
Total 397 278 169
Net Income (from statement of earnings)
397 278 169
Checking work
Foot Locker, Inc. Statement of Operations
