Financial Statements

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 &amp 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 &amp 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 &amp 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 &amp 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 &amp 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 &amp 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

Top of Form

Bottom of Form

Top of Form

Top of Form

Bottom of Form

Everett, R. E., Johnson, D. R., Madden, B. W., &amp Association ofSchool Business Officials International. (2012).&nbspFinancialaccounting for school administrators: Tools for schools. Lanham, MD: Rowman &amp LIttlefield Education.

Loughran, M. (2011).&nbspFinancial accounting for dummies.Hoboken, N.J: John Wiley &amp Sons.

Rajasekaran, V., &amp Lalitha, R. (2011).&nbspFinancialaccounting. 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