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Question 1
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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 | 6% |
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 | $2 |
Net earnings attributable to noncontrolling interests/Net earnings including noncontrolling interests | 6.5% |
Round all answers to the nearest whole number.
Do not use negative signs with your answers in the income statement.
Income Statement, Fiscal Years Ended ($ 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 | Answer |
418,815,000 shares, respectively | |
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.