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Question text Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet Following are the income...

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Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet
Following are the income statements and balance sheets of Macy's, Inc.

Consolidated Statement of Income
Fiscal Years Ended ($ millions)
February 2,
2013
January 28,
2012
January 29,
2011
Net sales $ 27,686 $ 26,405 $ 25,003
Cost of goods sold 16,538 15,738 14,824
Gross margin 11,148 10,667 10,179
Selling, general and administrative expenses 8,482 8,281 8,260
Impairments, store closing costs and (gain) on sale of leases 5 (25) 25
Operating income 2,661 2,411 1,894
Interest Expense 425 447 513
Premuim on early retirement debt 137 -- 66
Interest income 3 4 5
Income before income taxes 2,102 1,968 1,320
Federal, state and local income tax expense 767 712 473
Net Income $ 1,335 $ 1,256 $ 847
Consolidated Balance Sheets
($ millions)
Feb. 2, 2013 Jan. 28, 2012
Assets
Current Assets
Cash and cash equivalents $ 1,836 $ 2,827
Receivables 371 368
Merchandise inventories 5,308 5,117
Prepaid expenses and other current assets 361 465
Total current assets 7,876 8,777
Property and equipment--net accumulative depreciation 5,947 and 5,986 8,196 8,420
Goodwill 3,743 3,743
Other intangible assets--net 561 598
Other assets 615 557
Total assets $ 20,991 $ 22,095
Liabilities and Shareholders Equity
Current Liabilities
Short-term debt $ 124 $ 1,103
Merchandise accounts payable 1,579 1,593
Accounts payable and accrued liabilities 2,610 2,788
Income Taxes 355 371
Deferred income taxes 407 408
Total current liabilities 5,075 6,263
Long-term debt 6,806 6,655
Deferred income taxes 1,238 1,141
Other liabilities 1,821 2,103
Shareholders' equity
Common stock (387.7 and 414.2 shares outstanding) 4 5
Additional paid-in capital 3,872 5,408
Accumulated Equity 5,108 4,015
Treasury Stock (2,002) (2,434)
Accumulated other comprehensive loss (931) (1,061)
Total shareholders' equity 6,051 5,933
Total liabilities and shareholders' equity $ 20,991 $ 22,095


Forecast Macy's fiscal 2014 income statement using the following relations.

Net sales growth 5%
Cost of sales/Net sales 59.7%
Selling, general and administrative expenses/Net sales 30.6%
Impairments, store closing costs and gain on sale of leases $0
Interest expense no change
Premium on early retirement of debt $0
Interest income no change
Income tax expense/Income before income taxes 36.5%
  • Round all answers to the nearest whole number.

  • Do not use negative signs with your answers in the income statement.

Income Statement, Fiscal Years Ended ($ millions) 2014
Estimated
Net Sales Answer
Cost of sales Answer
Gross Margin Answer
Selling, general and administrative expenses Answer
Impairments, store closing costs and gain on sale of leases Answer
Operating income Answer
Interest expense Answer
Premium on early retirement of debt Answer
Interest Income Answer
Earnings before income tax expense Answer
Income tax expense Answer
Net Income Answer


Forecast Macy's fiscal 2014 balance sheet using the following relations ($ in millions). Assume that all capital expenditures are purchases of property and equipment.

Receivables/Net sales 1.3%
Merchandise inventories/Net sales 19.2%
Prepaid expenses and other current assets/Net sales 1.3%
CAPEX (Increase in gross Property and equipment)/Net sales 0.9%
Goodwill no change
Other intangible assets no change
Other assets/Net sales 2.2%
Mechandise accounts payable/Net sales 5.7%
Accounts payable and accrued liabilities/Net sales 9.4%
Income taxes/Net sales 1.3%
Current deferred income taxes/Net sales 1.5%
Noncurrent deferred income taxes/Net sales 4.5%
Other liabilities 6.6%
Depreciation expense/Prior year gross PPE 7.3%
Common stock and APIC no change
Treasury stock no change
Dividends/Net income 24.3%
Long-term debt payments required in fiscal 2014 $461
Long-term debt payments required in fiscal 2015 $481
Short-term debt $0

HINTS for forecasting 2014 Long-term debt balances:

  1. Forecasted Current maturities of L-T debt = Feb. 02, 2013 Short-term debt balance minus Long-term debt payments required in fiscal 2014 plus Long-term debt payments required in fiscal 2015.

  2. Forecasted L-T debt = Feb. 02, 2013 Long-term debt balance minus Long-term debt payments required in fiscal 2015.

Instructions:

  • Round answers to the nearest whole number.

  • Do not use negative signs with your answers in the balance sheet.

Balance Sheet
($ millions)
2014
Estimated
Assets
Cash and cash equivalents Answer
Receivables Answer
Merchandise inventories Answer
Prepaid expenses and other current assets Answer
Total current assets Answer
Property and equipment, net Answer
Goodwill Answer
Other intangible assets, net Answer
Other assets Answer
Total assets Answer
Current Liabilities
Current maturities of L-T debt Answer
Merchandise accounts payable Answer
Accounts payable and accrued liabilities Answer
Income taxes Answer
Deferred income taxes Answer
Total current liabilites Answer
Long-term debt Answer
Deferred income taxes Answer
Other liabilites Answer
Shareholders' equity
Common Stock Answer
Additional paid-in-capital Answer
Accumulated equity Answer
Treasury stock Answer
Accumulated other comprehensive loss Answer
Total shareholders' equity Answer
Total Liabilities and Equity

Answer

b. What does the forecasted adjustment to balance the accounting equation from part a reveal to us about the forecasted cash balance and related financing needs of the company? Explain.

Macy's will generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, increasing total assets.

Macy's will generate sufficient cash for the coming year. The cash balance increases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

Macy's will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

Macy's will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust short-term debt, increasing total assets.

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