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Foot Locker, Inc. - Questions from 2007 Annual Report

You will need to refer to the consolidated financial statements of Foot Locker, Inc., that are presented in Appendix B (ATTACHED IN 2 PDF FILES) at the end of your textbook, in order to complete each requirement of the project. The book only has the numbers for 2005- 2007. If you need numbers for other years, you can get them from the Foot Locker, Inc. Annual Reports, which are on the Foot Locker, Inc. website. You can find the information you need either by going to the Investor Relations web page www.footlocker-inc.com/investors.cfm?page=investor-relations or by going to www.sec.gov and downloading the company's 10-k for the relevant year(s).

Suppose you are an investor considering buying Foot Locker, Inc., common stock. The following questions are important. Show amounts in millions and round to the nearest $1 million.

1 Explain whether Foot Locker, Inc. had more sales revenue or collected more cash from customers during 2007. Why is accounts receivable missing from its balance sheet?

2 Investors are vitally interested in a company's sales and profits, and its trends of sales and profits over time. Consider Foot Lockers sales and net income (net loss) during the period from 2005 through 2007. Compute the percentage increase or decrease in net sales and also in net income (net loss) from 2005 to 2007. Which item grew faster during this two-year period, net sales or net income (net loss)? Can you offer a possible explanation for these changes?

During 2007, Foot Locker, Inc. had numerous accruals and deferrals. As a new member of Foot Locker, Inc.s accounting staff, it is your job to explain the effects of accruals and deferrals on net income for 2007. The accrual and deferral data follow, along with questions that Foot Locker, Inc.s stockholders have raised (all amounts in millions):

3 Examine Footnote 8 to Foot Lockers consolidated financial statements (Other Current Assets). Notice that included in this total is net receivables. Ending net receivables for 2006 (beginning balance of 2007) were $59 million. Ending net receivables for 2007 were $50 million. Which of these amounts did Foot Locker, Inc. earn in 2006? Which amount is included in Foot Locker, Inc.s 2007 net income?

4 Examine Footnote 9 (Property and Equipment, Net). Notice that accumulated depreciation stood at $870 million and the end of 2006 and at $903 million at year-end 2007. Assume that depreciation expense for 2007 was $100. Explain what must have happened to account for the remainder of the change in the accumulated depreciation account during 2007.

5 Focus on cash and cash equivalents. Why did cash change during 2007? The statement of cash flows holds the answer to this question. Analyze the seven largest individual items on the statement of cash flows (not the summary subtotals such as รข??net cash provided by operating activities). For each of the seven individual items, state how Foot Locker Inc.s action affected cash. Show amounts in millions and round to the nearest $1 million.

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Suppose you are an investor considering buying Foot Locker, Inc., common stock. The following questions are important. Show amounts in millions and round to the nearest $1 million.

1 Explain whether Foot Locker, Inc. had more sales revenue or collected more cash from customers during 2007. Why is accounts receivable missing from its balance sheet?

Normally this can be studied by analyzing the activity in the AR account:

Beg
+ billings (Sales)
- collections
= End

When you go to the balance sheet to find and plug in the AR accounts you noticed that AR does not exist! Why not? They don't extend credit - all sales are cash (or one day turn around with credit cards). So, I would say that sales and collections are virtually identical.

However, if you wish to assume that the "net receivables" in the "Other Current Assets" revealed in Footnote 8 is from sales, you would analyze as:

Beg 59
+ sales $5,437
- collections < --- plug for this = $5,446
End $50

2 Investors are vitally interested in a company's sales and profits, and its trends of sales and profits ...

Solution Summary

Your tutorial discusses the clues in the annual report of Foot Locker that give you this information. An excel spreadsheet supports the analysis (click in cells to see computations).

$2.19