Question

Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet
Following are the income statements and balance sheets of Best Buy Co., Inc.

Income Statement, Fiscal Years Ended ($ millions)	Feb. 26, 2011	Feb. 27, 2010
Revenue	$ 50,272	$ 49,694
Cost of goods sold	37,611	37,534
Restructuring charges - cost of goods sold	24	--
Gross profit	12,637	12,160
Selling, general and administrative expenses	10,325	9,873
Restructuring charges	198	52
Goodwill and tradename impairment	--	--
Operating income	2,114	2,235
Other income (expenses)
Investment income and other	51	54
Interest expense	(87)	(94)
Earnings before income tax expense and equity in income of affiliates	2,078	2,195
Income tax expense	714	802
Equity in income of affiliates	2	1
Net earnings including noncontrolling interests	1,366	1,394
Net (earnings) attributable to noncontrolling interests	(89)	(77)
Net earnings attributable to Best Buy Co., Inc.	$ 1,277	$ 1,317

Balance Sheet ($ millions)	Feb. 26, 2011	Feb. 27, 2010
Assets
Cash and cash equivalents	$ 1,103	$ 1,826
Short-term investments	22	90
Receivables	2,348	2,020
Merchandise inventories	5,897	5,486
Other current assets	1,103	1,144
Total current assets	10,473	10,566
Property and equipment
Land and buildings	766	757
Leasehold improvements	2,318	2,154
Fixtures and equipment	4,701	4,447
Property under capital lease	120	95
Gross property and equipment	7,905	7,453
Less accumulated depreciation	4,082	3,383
Net property and equipment	3,823	4,070
Goodwill	2,454	2,452
Tradenames, Net	133	159
Customer Relationships, Net	203	279
Equity and Other Investments	328	324
Other assets	435	452
Total assets	$ 17,849	$ 18,302
Liabilities and Equity
Accounts payable	$ 4,894	$ 5,276
Unredeemed giftcard liabilities	474	463
Accrued compensation and related expenses	570	544
Accrued liabilities	1,471	1,681
Accrued income taxes	256	316
Short-term debt	557	663
Current portion of long-term debt	441	35
Total current liabilities	8,663	8,978
Long-term liabilities	1,183	1,256
Long-term debt	711	1,104
Best Buy Co., Inc. Shareholders' Equity
Preferred stock, $ 1.00 par value: Authorized-400,000 shares; Issued and outstanding-none	--	--
Common stock $0.10 par value: Authorized-1.0 billion shares; Issued and outstanding-392,590,000 and 418,815,000 shares, respectively	39	42
Additional paid-in capital	18	441
Retained earnings	6,372	5,797
Accumulated other comprehensive income	173	40
Total Best Buy Co., Inc. shareholders' equity	6,602	6,320
Noncontrolling interests	690	644
Total equity	7,292	6,964
Total liabilities and shareholders' equity	$ 17,849	$ 18,302

Forecast Best Buy's fiscal 2012 income statement using the following relations (assume "no change" for accounts not listed).

Revenue growth	4.5%
Cost of good sold/Revenue	74.8%
Restructuring charges - cost of good sold	$--
Selling, general and administrative expenses/Revenue	20.5%
Restructuring charges	$--
Goodwill and trademark impairment	$--
Investment income and other	$51
Investment impairment	$--
Interest expense	$87
Income tax expense/Pretax income	34.4%
Equity in income of affiliates	$2
Net earnings attributable to noncontrolling interests/Net earnings including noncontrolling interests	7.5%

• 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)	2012 Estimated
Revenue	Answer
Cost of goods sold	Answer
Restructuring charges - cost of goods sold	Answer
Gross profit	Answer
Selling, general and administrative expenses	Answer
Restructuring charges	Answer
Goodwill and tradename impairment	Answer
Operating income	Answer
Other income/expenses
Investment income and other	Answer
Interest expense	Answer
Earnings before income tax expense and equity in income of affiliates	Answer
Income tax expense	Answer
Equity in income of affiliates	Answer
Net earnings including noncontrolling interests	Answer
Net earnings attributable to noncontrolling interests	Answer
Net earnings attributable to Best Buy Co., Inc.	Answer

Forecast Best Buy's fiscal 2012 balance sheet using the following relations (assume "no change" for accounts not listed). Assume that all capital expenditures are purchases of property and equipment.

Short-term investments	No change
Receivables/Revenue	4.7%
Merchandise inventories/Revenue	11.7%
Other current assets/Revenue	2.2%
CAPEX (Increase in gross Property and equipment)/Revenue	1.5%
Goodwill	No change
Amortization expense for Tradenames	$25
Amortization expense for Customer relationships	$38
Equity and Other Investments	No change
Other Assets/Revenue	0.9%
Accounts payable/Revenue	9.7%
Unredeemed gift card liabilities/Revenue	0.9%
Accrued compensation and related expenses/Revenue	1.1%
Accrued liabilities/Revenue	2.9%
Accrued income taxes/Revenue	0.5%
Long-term liabilities	No change
Noncontrolling interests	*
Depreciation/Prior year gross PPE	12.0%
Amortization/Prior year intangible asset balance	18.7%
Dividends/Net income	18.6%
Long-term debt payments required in fiscal 2013	$37
*increase by net income attributable to noncontrolling interests and assume no dividends

• Round all answers to the nearest whole number.

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

Balance Sheet ($ millions)	2012 Estimated
Assets
Cash and cash equivalents	Answer
Short-term investments	Answer
Receivables	Answer
Merchandise inventories	Answer
Other current assets	Answer
Total current assets	Answer
Property and equipment
Gross property and equipment	Answer
Less accumulated depreciation	Answer
Net property and equipment	Answer
Goodwill	Answer
Tradenames, Net	Answer
Customer Relationships, Net	Answer
Equity and Other Investments	Answer
Other assets	Answer
Total assets	Answer
Liabilities and equity
Accounts payable	Answer
Unredeemed gift card liabilities	Answer
Accrued compensation and related expenses	Answer
Accrued liabilities	Answer
Accrued income taxes	Answer
Short-term debt	Answer
Current portion of long-term debt	Answer
Total current liabilities	Answer
Long-term liabilities	Answer
Long-term debt	Answer
Best Buy Co., Inc. Shareholders' Equity
Preferred stock, $1.00 par value: Authorized - 400,000 shares; Issued and outstanding - none	Answer
Common stock, $0.10 par value: Authorized - 1.0 billion shares; Issued and outstanding - 392,590,000 and 418,815,000 shares, respectively	Answer
Additional paid-in capital	Answer
Retained earnings	Answer
Accumulated other comprehensive income	Answer
Total Best Buy Co., Inc. shareholders' equity	Answer
Noncontrolling interests	Answer
Total 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.

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

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

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

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

Answer 1

Income Statement, Fiscal Years Ended ($ millions)	2012 Estimated
Revenue (50,272 + 4.5%)	52,534
Cost of goods sold (52,534 *74.8%)	39,295
Restructuring charges - cost of goods sold	0
Gross profit	13,215
Selling, general and administrative expenses (52,534 * 20.5%)	10,769
Restructuring charges	0
Goodwill and tradename impairment	0
Operating income	2,446
Other income/expenses:
Investment income and other	51
Interest expense	(87)
Earnings before income tax expense and equity in income of affiliates	2,410
Income tax expense (2,410 * 34.4%)	829
Equity in income of affiliates	2
Net earnings including noncontrolling interests	1583
Net earnings attributable to noncontrolling interests (1583 * 7.5%)	(119)
Net earnings attributable to Best Buy Co., Inc.	1464