FINANCIAL STATEMENTS 1
Institution Affiliations
History
L brand is an American company headquartered inColumbus, Ohio. The corporation deals in fashion products. Initially,it was known as Limited Brands Inc and the Limited Inc. The companywas founded in 1963 by Leslie H. Wexner. Through acquisitions, thecompany has experienced considerable growth and was listed on the2013 Fortune 500 list of top companies where it ranked at position258. Some of the earliest brands that were associated with the groupincluded Victoria’s Secret and Bath and Body Works. At the time itappeared on the Fortune 500 list, the company had just posted revenueof $10.5 billion.
Latest Information
According to Fores.com, L Brands Company’s stocksuffered a decline of 30% Year-To-Date. The news article acknowledgesthat the company has relatively been profitable over the yearsdespite a fall in demand in the apparel industry (Team, 2016). Thecompany has been able to maintain a stellar performance over timedespite a significant economic downturn in the business world.Despite many firms in the apparel industry posting massive losses in2014, the company, which is associated with Victoria’s Secret andBath & Body Works, saw its profits grow by 40 in stock price. Theprofits further rose by 12% in 2015. However, year-to-date in 2016indicate that the company’s profitability in 2016 has declined by30% in the share price (Team, 2016).
Various reasons can be considered to have causedthe fall in stock prices of the company. Major restructuring of thebusiness might have been behind the fall in the firm’s financialperformance. Under the new framework of operations, Victoria’sSecret has been subdivided into three other divisions to be managedby separate executives. They include Victoria’s Secret Beauty,PINK, and Victoria’s Secret Lingerie (Team, 2016). Additionally, LBrands has been repositioning its Beauty portfolio of operations dueto dismal performance that has been witnessed for the last threeyears. This has necessitated a shift of brand’s focus to high-endbody care products unlike in the past where great emphasis had beenplaced in fantasy beauty products. Finally, the decline in the shareprices can be attributed to the external business environment thathas been characterized by weak exchange rates in the internationalstage, diminished tourism in some cities that has culminated in thefall of sales (Team, 2016).
Horizontal Analysis
Horizontal analysis is also known as trendanalysis and defines the comparison of historical financial datareported over distinct periods (Rajasekaran & Lalitha,2011). The identification of changes in thefinancial performance of business within a given period is theprimary objective of this analysis. It is accomplished by a simplegrouping of information depending on the reporting durations. In thecase of L Brands, the horizontal analysis will focus on the company’sBalance Sheet and Income Statement.
Balance Sheet
|
BALANCE SHEET |
|||||||
|
ASSETS |
2015 |
2016 |
Variance |
||||
|
Current Assets |
|||||||
|
Cash and Cash Equivalent |
1681 |
2548 |
867 |
||||
|
Accounts Receivable |
252 |
261 |
9 |
||||
|
Inventories |
1036 |
1122 |
86 |
||||
|
Other |
230 |
225 |
-5 |
||||
|
Total Current Assets |
3199 |
4156 |
957 |
||||
|
property and Equipment |
2277 |
2330 |
53 |
||||
|
Goodwill |
1318 |
1318 |
0 |
||||
|
Trade Names & Intangible |
411 |
411 |
0 |
||||
|
Deffered Income Taxes |
24 |
30 |
6 |
||||
|
Other Taxes |
247 |
248 |
1 |
||||
|
Total Assets |
7476 |
8493 |
1017 |
||||
|
LIABILITIES AND EQUITY |
|||||||
|
Current Liabilities |
|||||||
|
Accounts Payable |
613 |
668 |
55 |
||||
|
Accrued Expense |
900 |
977 |
77 |
||||
|
Current Long term Debt |
0 |
6 |
6 |
||||
|
Income Taxes |
166 |
224 |
58 |
||||
|
Total Current Liabilities |
1679 |
1875 |
196 |
||||
|
Deferred Income Taxes |
236 |
257 |
21 |
||||
|
Long-Term Debt |
4,722 |
5,715 |
993 |
||||
|
Other LT Debts |
820 |
904 |
84 |
||||
|
Shareholders’ Equity (Deficit): |
|||||||
|
Preferred Stock |
0 |
0 |
0 |
||||
|
Common Stock |
155 |
156 |
1 |
||||
|
Paid-in Capital |
427 |
545 |
118 |
||||
|
Accumulated Other CI |
35 |
40 |
5 |
||||
|
Retained Earnings |
233 |
315 |
82 |
||||
|
Less: Treasury Stock |
-832 |
-1315 |
-483 |
||||
|
Total Shareholder Equity(Deficit) |
18 |
-259 |
-277 |
||||
|
NonControlling Interest |
1 |
1 |
0 |
||||
|
Total Equity (Deficit) |
19 |
-258 |
-277 |
||||
|
Total Liabilities & Equity |
7476 |
8493 |
1017 |
||||
Income Statement
|
INCOME STATEMENT |
||||||
|
2013 |
2014 |
variance |
2015 |
Variance |
||
|
Net Sales |
10773 |
11454 |
681 |
12154 |
1381 |
|
|
Cost of Goods Sold |
6344 |
-6646 |
-12990 |
-6950 |
-13294 |
|
|
Gross Profit |
4429 |
4808 |
379 |
5204 |
775 |
|
|
General Expense |
-2686 |
-2855 |
-169 |
-3012 |
-326 |
|
|
Operating Income |
1743 |
1953 |
210 |
2192 |
449 |
|
|
Interest Expense |
-314 |
-324 |
-10 |
-334 |
-20 |
|
|
Other Income |
17 |
7 |
-10 |
76 |
59 |
|
|
Income before Taxes |
1446 |
1636 |
190 |
1934 |
488 |
|
|
Provisions for Income Taxes |
543 |
594 |
51 |
681 |
138 |
|
|
Net Income |
903 |
1042 |
139 |
1253 |
350 |
|
|
Net Income per Basic Share |
3.12 |
3.57 |
0.45 |
4.3 |
1.18 |
|
|
Net Income per Diluted Share |
3.05 |
3.5 |
0.45 |
4.22 |
1.17 |
|
Vertical Analysis
Vertical analysis refers to the analysis offinancial information within a single time period (Everett etal., 2012). This form of evaluation is alsoessential in timeline analysis and aims at establishing key changesto the account over a specific duration. In the case of L Brand, thevertical analysis will be conducted for both the Balance Sheet andthe Income Statement. In the balance sheet, every line item will bestated as a percentage of the total assets whereas in the incomestatement, the point of comparison will be gross sales.
|
BALANCE SHEET |
||||
|
ASSETS |
2015 |
2016 |
||
|
Current Assets |
||||
|
Cash and Cash Equivalent |
22% |
30% |
||
|
Accounts Receivable |
3.37% |
3.07% |
||
|
Inventories |
13.86% |
13.21% |
||
|
Other |
3.08% |
2.65% |
||
|
Total Current Assets |
42.79% |
48.93% |
||
|
property and Equipment |
30.46% |
27.43% |
||
|
Goodwill |
17.63% |
15.51% |
||
|
Trade Names & Intangible |
5.50% |
4.84% |
||
|
Deferred Income Taxes |
0.50% |
0.35% |
||
|
Other Taxes |
3.30% |
2.92% |
||
|
Total Assets |
100% |
100% |
||
|
LIABILITIES AND EQUITY |
||||
|
Current Liabilities |
||||
|
Accounts Payable |
8.20% |
7.87% |
||
|
Accrued Expense |
12.04% |
11.50% |
||
|
Current Long term Debt |
0.00% |
0.07% |
||
|
Income Taxes |
2.22% |
2.63% |
||
|
Total Current Liabilities |
22.46% |
22.10% |
||
|
Deferred Income Taxes |
3.16% |
3.02% |
||
|
Long-Term Debt |
63.16% |
67.29% |
||
|
Other LT Debts |
10.97% |
10.64% |
||
|
Shareholders’ Equity (Deficit): |
||||
|
Preferred Stock |
0.00% |
0% |
||
|
Common Stock |
2.07% |
1.83% |
||
|
Paid-in Capital |
5.71% |
6.41% |
||
|
Accumulated Other CI |
0.47% |
0.47% |
||
|
Retained Earnings |
3.11% |
3.71% |
||
|
Less: Treasury Stock |
-11.12% |
-15.48% |
||
|
Total Shareholder Equity(Deficit) |
0.24% |
3.05% |
||
|
Non-Controlling Interest |
0.01% |
0.01% |
||
|
Total Equity (Deficit) |
0.25% |
-3.04% |
||
|
Total Liabilities & Equity |
100.00% |
100.00% |
||
|
INCOME STATEMENT |
|||||||
|
2013 |
2014 |
2015 |
|||||
|
Net Sales |
100% |
100% |
100% |
||||
|
Cost of Goods Sold |
59.11% |
-58.02% |
-57.18% |
||||
|
Gross Profit |
41.11% |
41.98 |
42.82% |
||||
|
General Expense |
-24.93% |
-24.93% |
24.78% |
||||
|
Operating Income |
16.18% |
17.05% |
18.03% |
||||
|
Interest Expense |
-2.91% |
-2.83% |
-2.75% |
||||
|
Other Income |
0.16% |
0.06% |
0.63% |
||||
|
Income before Taxes |
13.42% |
14.28% |
15.91% |
||||
|
Provisions for Income Taxes |
5.04% |
5.19% |
5.60% |
||||
|
Net Income |
8.38% |
9.10% |
10.31% |
||||
|
Net Income per Basic Share |
0.03% |
0.03% |
0.04% |
||||
|
Net Income per Diluted Share |
0.03% |
0.03% |
0.03% |
||||
Comments on the Vertical and HorizontalAnalyses
The horizontal analysis has been used to comparethe financial performance of the company over time. In the case ofthe declaration of revenue, the sales have increased for the threeyears under consideration. There has been a decline in the cost ofgoods sold and interest expenses. The balance sheet witnessed anincrease in the total assets from 2015 to 2016. The same trend wasobserved for total liabilities and equity. The vertical analysis wasused to compare the components of the specific financial statements.However, there was an increase in the total current assets whencompared to the company’s total assets.
Cash Flow Statement
This is financial used to report the cash flows ofbusiness (Loughran, 2011). It can either beprepared through direct or indirect method. However, the latter ispreferred by most organizations due to the ease of use. The cash flowstatement is divided into three main sections namely operatingactivities, investing activities, and financing activities.
There was a steady increase in capitalexpenditures for the free years under consideration
Proceeds from the sale of assets were only recorded in 2015.
L Brand received returns on capital worth $46 million from an investment made in third-party apparel business sourcing.
There was an increase in the net cash from the operating activities of the firm from 2013 all through to 2015
There was a substantial increase of dividends paid by L Brands over the years.
The company also reported a rise in excess tax benefits from share-based compensation.
The highest amount of cash was used for financing activities in 2015 ($558 million)
Ratio Analysis
Working Capital
=Current Assets-Current Liabilities
2016
(4156-1875)=2281
2015
(3199-1679)=1520
Current Ratio
=Current Assets/Current Liabilities
2016
(4156/1875)=2.22
2015
(3199/1679)=1.91
Debt-to-Asset Ratio
=Total Liabilities/Total Assets
2016
(8492/8493)=1
2015
(7475/7476)=1
Debt-to-Equity Ratio
=Total Liabilities/Total Stockholder Equity
2016
8492/-(259) =-32.79
2015
(7475/18)= 415.28
Return on Investment
=Net Income/Total Assets
2015
(1253/7476)=0.17
Net Margin
=Net Income/Net Sales
2013
(903/10773)=0.08
2014
(1042/11454)=0.091
2015
(1253/12154)=0.10
Comment on the Ratios
Working Capital
This is a measure of a company’s ability to meetits short term obligations when they fall due. For L Brand, thevalues were positive and indicate the business is in a healthyfinancial position.
Current Ratio
Current ratio is a financial liquidity ratio andmeasures the capacity of a firm to pay both the short-term andlong-term expenses (Loughran, 2011). Aratio below one indicates that the business is not a good financialhealth. A ratio between 1 and 2 is recommended.
Debt Asset RatioThisratio determines the financial leverage of a company by identifyingthe percentage of assets that were financed by creditors.
Debt-to-Equity Ratio
This is a financial ratio that analyzes acompany’s financing sources. It therefore, determines thepercentage of company finance that is provided by investors as wellas creditors (Loughran, 2011). A high valuelike in the case of L Brand indicates that the company’s financialstructure is based on creditor financing.
Return on Investment
This is a percentage that measures financialdecision by determining the efficiency and profitability ofinvestments made by a firm.
Net Margin
Net margin is a financial ratio that compares netincomes and net sales and is determined as a percentage (Loughran,2011).
Conclusion
From the ratio analyzed above, it is evident thatL Brand is a profitable venture with the capacity to meet itsfinancial obligations when they fall due. Additionally, the positivefinancial performances are evidence to the healthy financial positionof the firm. As such, an investor should invest in the company.
References
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Everett, R. E., Johnson, D. R., Madden, B. W., & Association ofSchool Business Officials International. (2012). Financialaccounting for school administrators: Tools for schools. Lanham, MD: Rowman & LIttlefield Education.
Loughran, M. (2011). Financial accounting for dummies.Hoboken, N.J: John Wiley & Sons.
Rajasekaran, V., & Lalitha, R. (2011). Financialaccounting. New Delhi: Dorling Kindersley.
Team, T. (2016). Why Has L Brands` StockPrice Declined By Around 30% Year-To-Date? Forbes. Retrieved fromhttp://www.forbes.com/sites/greatspeculations/2016/06/21/why-has-l-brands-stock-price-declined-by-around-30-year-to-date/#5b374ad764abBottomof Form