PROJECT

IN
FINA004
(FINANCIAL STATEMENT ANALYSIS)



RAJAS, MICHAEL BERT G.
BSA / E44 / TTHS 6-7pm











K-L Fashions, Inc. Financial Statements
Income Statement
For the year ended January 31:

(Dollars in thousands)

2005

2004

2003

2002

Net Sales $6,039,750 $5,452,010 $4,558,060 $3,362,910
Cost of Goods 3,573,070 3,135,730 2,616,710 1,903,480
Gross Profit 2,466,680 2,316,280 1,941,350 1,459,430

Selling, General and Administrative
Expenses (including depreciation)

2,221,540

1,849,100

1,434,860

1,076,990

Income from Operations

245,140

467,180

506,490

382,440
Other Income (expenses):
Interest and other income 14,470 19,510 27,250 14,410
Interest Expense (10,180) (13,990) (12,320) (13,570)

Income Before Income Taxes

249,430

472,700

521,420

383,280

Income Tax Provision

102,000

181,990

198,600

162,080

Net Income

$147,430

$290,710

$322,820

$221,200

(As a Percentage of Sales)
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods 59.2 57.5 57.4 56.6
Gross Profit 40.8 42.5 42.6 43.4

Selling, General and Administrative
Expenses (including depreciation)

36.8

33.9

31.5

32.0

Income from Operations

4.0

8.6

11.1

11.4
Other Income (expenses):
Interest and other income

.3

.4

.6

.4

Interest Expense

(.2)

(.3)

(.3)

(.4)

Income Before Income Taxes

4.1

8.7

11.4

11.4

Income Tax Provision

1.7

3.4

4.3

4.8

Net Income

2.4%

5.3%

7.1%

6.6%




K-L Fashions, Inc. Financial Statements
Balance Sheet
January 31:

(Dollars in thousands)

2005

2004

2003

2002
Assets
Current Assets:
Cash and Cash Equivalents $272,640 $82,540 $321,390 $281,750
Receivables 12,090 3,480 7,550 2,740
Inventory 738,630 857,090 668,200 464,440
Prepaid Expenses 54,880 54,030 39,670 33,630
Total Current Assets 1,078,240 997,140 1,036,810 782,560

Property, Plant & Equipment (at cost):
Land and Buildings 531,270 383,350 312,670 151,140
Fixtures and equipment 476,460 411,230 251,920 219,740
Leasehold improvements 16,460 15,120 12,340 9,080
Construction in progress ---- 46,370 32,800 6,740
Less Accumulated Depreciation (248,430) (183,890) (135,020) (99,470)
Property, Plant & Equipment, net 775,760 672,180 474,710 287,230
Total Assets $1,854,000 $1,669,320 $1,511,520 $1,069,790

Liabilities and Stockholders Equity
Current Liabilities:
Accounts Payable $377,970 $244,150 $259,040 $212,223
Advance Payment on Orders 4,460 2,030 3,500 4,530
Income Taxes Payable 70,800 53,020 103,970 53,940
Other Current Obligations 154,510 139,950 148,790 117,900
Total Current Liabilities 607,740 439,150 515,300 388,600

Long-Term Debt 78,000 84,130 76,740 86,670

Stockholders Equity:
Common Stock; 20.1M, 20.1M &20.0M
Shares, respectively, at par

2,010

2,010

2,000

2,000
Additional Capital, net 311,360 307,810 293,080 223,080
Retained Earnings 983,810 875,160 624,400 341,666
Less Treasury Stock, at cost (128,920) (38,940) ---- ----
Total Stockholders Equity 1,168,260 1,146,040 919,480 566,740
Total Liabilities and Equity $1,854,000 $1,669,320 $1,511,520 $1,069,790







How quickly does the prospective credit customer pay its bills?


- Suppose that, on balance, we find the companys short-term solvency to be acceptable. Before
agreeing to supply the company on a credit basis (or establishing credit terms for the company), we
should try to determine how quickly the company normally pays its bills. The Average Age of
Payables [(Average Payable Net Purchases) x 365] helps answer this question. That is, having
determined that a company has the capacity to pay its short-term obligations as they come due
(through the current or quick ratios), it is also important to evaluate its payment practice. In a manner
similar to calculating the average collection period for accounts receivable, one can compute the
average age of a companys payable, which is the average number of days it takes to pay its
invoices. The age of the potential customers payable will give a reasonable estimate of how soon a
creditor can expect to be paid. This is particularly important for the small business that has just landed
a major customer.

A large corporation is likely to use very effective (from its own standpoint) cash management
procedures to ensure prompt payment from its customers while delaying payment to its suppliers as
long as possible. Unless the small business is a critical suppler of its large corporate customer, that
corporation may not accelerate its payment cycle to meet the suppliers cash flow needs. Thats why it
is critically important for the decision-making process of the small-business owner/manager to be able
to estimate the potential customers payment cycle.

To calculate the average age of payables for K-L Fashions, we need to estimate purchases because
they are not reported directly in the statements. Cost of goods sold (which is on the income statement)
equals beginning inventory, plus net purchases, minus ending inventory. Therefore, purchases equal
the cost of goods sold ($3,573,070) minus beginning inventory $857,090) plus ending inventory
($738,630), or about $3,454,610. Using this calculation, we can calculate that the average age of K-L
Fashions payables is [($311,060 $3,454,610) x 365] = 32.9 days. If K-L Fashions were a potential
customer, we should not expect it to pay our invoices much sooner than 33 days.