The GAP Inc. is an American company which was established in 1969 by Doris F. Fisher and Donald Fisher and is an accessories and clothing retailer in most parts of the world. The corporation has its headquarters in San Francisco and has five divisions under which it achieves its objectives. These divisions are inclusive of the Athleta, Intermix, Old Navy, Banana Republic and the Namesake Banner. In the United States, the company is the top about specialty retailership, and it is classified has the third largest across the world. The Gap Inc. operates approximately 3727 outlets and has 135000 employees in all its areas of operation ("Home", 2017). After this couple established the company, other members of the family involved themselves in enhancing its progress and since then they have been engaged in its operations intensively.
The growth of any company depends on its financial health, profitability as well as innovation. About the financial performance of the Gap from 2007, the corporation has experienced ups and downfalls during the periods of economic boom and recession. In the first quarter of 2007 the company had revenues amounting to $15923 million but with the onset of financial crisis there was a decline to 15763 in 2008. The following four years experienced the same trend from $14526 to $14549 million as of 2010 and 2013 respectively. However, there was an increase in its revenues at a steady pace with the highest achieved in 2015 when it attained $16435 million (Hollard, 2012). About its net income, the Gap Inc. experienced significant growth from 2007 to 2016. In 2007, the net income in million USD was 778 and as of 2014, the company attained 1135 million. Focusing on the earnings per share, the company experienced over 100% increment in the earnings between 2007 and 2016 with the former figure being $0.93 and the latter being $2.33.From 2009 to 2010, there was an increase in Gaps sales by approximately 3.3%.
Focusing on the companys balance sheet, the assets, shareholders equity as well as the liabilities shows how the firm can evaluate its assets in comparison to the liabilities. When utilizing the vertical analysis to examine the trends in this financial statement, the Gaps inventories were approximately 24% of the current assets in the firm in 2015 when compared to staggering 19% in the previous year. This trend has an implication that it had more inventories than what it was selling. About the statement of cash flows in the organization, it summarizes the cash generated and spent through the financing, investing and the operating activities. From 2007 to 2015, the operating cash flow in the company increased by approximately 12.1%, which has an implication that either more cost savings or sales have provided the firm a gain of the revenue. According to the financial reports derived from the management of Gap Inc. for the past ten years, there was an increase in the capital expenditure by 7.3% between 2007 and 2016 that demonstrates that the company has reinvested its profits through the purchases of securities, properties and equipment which were not intended for immediate resale. About the financing activities, the Gap was able to get much of the capital stock by approximately three times between 2015 and 2009 implying that there is undervaluation of the equities in the securities exchange market.
Considering the firms liquidity, the current ratio measures the ability of the company to pay the short-term obligations. It is computed by dividing the current Assets and the current liabilities. Using this method, it is possible to approximate the amount of assets that the corporation should have to prevent the uneven flow of working capital. The Gap recorded $1.76 about the current assets per unit it had in its current liabilities in the financial year 2013 in comparison to Ross 1.53 and TJX at 1.52 for the clothing industry. Regardless of the decline in its current ratio, it was below the industry value in 2014 and 2015.
The quick ratio is used by the financial analysts in evaluating if the company is in a position of meeting the short term financial obligations with the quick assets inclusive of cash and those which can be liquefied fast. For the ten year period, the Gap Inc. had an average of 0.81USD in the current assets and cash for every dollar in the current liabilities. The only time that the quick ratio of the company was above its competitors was only in 2010 when it was above 1.0 (Hollard, 2012). Focusing on the leverage ability of the firm, the debt ratio measures the firm financial leverage and is computed by dividing the liabilities by the stakeholders equity. The average debt ratio for the past ten years has been 0.59 cents for each dollar of the equity and has been above other clothing companies with the industry average being 0.36 cents/dollar ("Growth, Profitability, and Financial Ratios for Gap Inc (GPS) from Morningstar.com", 2017). The high debt to equity ratio implies that the firm is very aggressive about funding its growth with both the long-term and the short-term amount overdue (Gill, Chatton, & Osgood, 2009). The graph below reflects the performance of the company in comparison to its competitors.
The gross profit margin evaluates the financial health of the company through revealing the amount of funds left from the revenues after the cost of goods sold are accounted for(Gap, 2007). This ratio serves as the source of making payments on additional expenses as well as the future savings("Growth, Profitability, and Financial Ratios for Gap Inc (GPS) from Morningstar.com", 2017). Compared to the Ross and the TJX companies, it appears that all these corporations are relatively close for a period of ten years. However, the Gap Inc. has the highest profit margin as shown in the graph below.
About the net profit margin, the ratio examines the proportion of the dollar derived from the sales is kept in the earnings of the firm (Roode & Leith, 2009). This ratio is computed as the net incomes are divided by the sales or revenues. Also, it reflects the profitability of the company in comparison to the other players in the industry. The average net profit margin of the Gap Inc. from 2007 to 2016 has been 7.25% implying that the net income has been $7.25 for every dollar in its sales. Other Financial ratios are showed in the table below.
Efficiency 2007 2009 2013 2015 2016
Days Inventory 61.91 61.93 64.93 68.18 68.13
Days Sales Outstanding 7.32 8.18 6.43
Cash Conversion Cycle Inventory Turnover 5.9 5.89 5.62 5.35 5.36
Asset Turnover 1.84 1.89 2.1 2.11 2.12
Receivables Turnover 29.71 33.4 33.18
The Gap Inc. SWOT Analysis
From the analysis above, the market share of the Gap Inc. in the international market puts it ahead of its competitors in the clothing industry not only in the United Kingdom and the United States but also other parts of the world.
The experiences of the managers in the industry is an advantage to its operations and growth. The management was able to move the corporation back in track after experiencing a significant decline in its revenues from 2009 to 2012 as explained in the analysis.
Also, the ability of the Gap Inc. in most parts of Europe by opening new retail stores has increased its revenues as well as profitability for the past ten years.
Focusing on the financial performance of the company, the earnings per share have been increasing as discussed in the analysis. This factor has the implications that the market-to-book value increased raising the demand of its stocks.
The Gaps Inc. increased working capital by 12.1% from 2007 to 2016 demonstrates that the company is in a position to cover its short term debts improving its financial strength.
The inventory turnover of the company has been decreasing in some of the times. For instance, in 2013 it was 5.62, but decreased to 5.36 in 2016. This effect shows that the Gap Inc. had excess inventory and poor sales from its failure to strategize how to counter the increasing competition in the market.
Unfortunately, the corporation has lower return on assets ratio at 19.83 in comparison to its competitors such as Ross and TJX at 22.71 and 21.73 respectively. If the ROA is low then it means that the company has not been using its assets optimally.
The average accounts receivable turnover of the Gap Inc. has been below that of the industry of 140.03. This trend shows that the management is collecting the accounts receivable slower than other companies.
Selling its products via the online retail outlets to boost its sales.
Associating with other small retail outlets focusing on fashion design to increase its market share, as well as counter the increasing competition in the industry.
Initiating better product promotion methods to improve its sales.
Venturing in other parts of Europe and the United States.
Increasing cost of revenue in some of the financial years such as FY 2015
Tough economic periods and difficulties to estimate the effects of Brexit in the industry.
Increased competition from companies such as TJX and Ross.
Fashion designs offered at subsidized rates by other outlets.
Given the prevailing situation in the clothing industry, the company needs to use balanced scorecard in its financial statements to align all the activities and goals of the stakeholders. In the modern world, businesses are facing internal and external sources, the Gaps Inc. management should evaluate its weaknesses and threats, as well, as use its strengths and opportunities to improve its market power. Also, it should diversify in producing child clothes to enhance share in the entire population.
Gap Inc, GPS: NYQ financials - FT.com. (2017). Markets.ft.com. Retrieved 28 February 2017, from https://markets.ft.com/data/equities/tearsheet/financials?s=GPS:NYQ
Gap, I. (2007). 2007 Annual Report.
Gap, I. (2016). 2016 Annual Report.
Gill, J., Chatton, M., & Osgood, W. (2009). Understanding financial statements (1st ed.). [Rochester, NY]: Axzo Press.
Growth, Profitability, and Financial Ratios for Gap Inc (GPS) from Morningstar.com. (2017). Financials.morningstar.com. Retrieved 28 February 2017, from http://financials.morningstar.com/ratios/r.html?t=GPS
Holland, T., Bowden, G., Waller-Davies, B., & Tugby, L. (2012). Analysis: Gap UK faces fierce competition. Retail Week. Retrieved 28 February 2017, from https://www.retail-week.com/analysis-gap-uk-faces-fierce-competition/5043213.article
Home. (2017). Gapinc.com. Retrieved 28 February 2017, from http://www.gapinc.com/content/gapinc/html.html
Roode, M. & Leith, K. (2009). Financial reporting (1st ed.). [Pretoria]: [Salt and Pepper].
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