Assignment: Fixed Assets and Intangibles
Report the required ratios or dollar amounts for items 1, 2, and 3 in a table and answer the remainder of the questions in narrative form (single-space with section headings, extra space between sections).
1. Report the dollar amount of PPE, net for the most recent and previous fiscal year. Calculate PP&E as a percentage of total assets for your company ($PPE/$Total Assets) for the most recent and previous fiscal year.
2. Calculate the Asset Turnover Ratio (net sales divided by average total assets) for the most recent year and the previous year. What does the asset turnover ratio attempt to measure? (see our online text or search the internet for a proper interpretation of the asset turnover ratio). Interpret the ratio for your company and indicate whether it improved or declined.
3. Has your company acquired or sold long-term assets during the past year? Indicate the amount of cash received or paid for transactions. Look over the footnotes to the financial statements or the investing section of the statement of cash flows to answer the question. Indicate where you found the information. See example for Shoe Carnival below.
4. What depreciation method (or methods) does your company use? Where did you find this information?
5. What intangibles assets does your company include in the balance sheet? What method of amortization does the company use for intangibles? (the straight-line method is typical, but not the only option). Are all of the reported intangibles amortized? If no, why not? What intangible assets might your company have that are not reported (e.g. trademarks, patents, copyrights)? Remember, accounting rules require immediate expensing of internally developed intangibles instead of capitalizing so many companies' balance sheets do not report these sometimes very valuable assets.
As an example, Shoe Carnival's Balance Sheet does not report a separate line item for intangibles and does not indicate that intangibles are included in ‘Other assets' on the balance sheet, yet in an overview of the company's business, management lists multiple trademarks (brand names) that the company owns and describes them as ‘valuable'.
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Shoe Carnival, Inc.
Consolidated Statements of Cash Flows
(In thousands)
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January 30,
2016
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January 31,
2015
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February 1,
2014
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Cash Flows From Operating Activities
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Net income
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$ 22,767
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$ 25,527
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$ 26,871
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization.
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23,078
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20,063
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17,428
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Stock-based compensation
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3,702
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1,064
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3,295
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Loss on retirement and impairment of assets, net
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1,770
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1,104
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1,180
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Deferred income taxes
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(3,035)
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(550)
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(721)
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Lease incentives
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6,604
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8,307
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8,112
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Other
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(5,171)
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(1,070)
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405
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Changes in operating assets and liabilities:
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Accounts receivable
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588
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1,409
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(2,135)
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Merchandise inventories
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(5,001)
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(3,076)
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(12,519)
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Accounts payable and accrued liabilities
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6,530
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6,838
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(4,158)
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Other
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723
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(1,962)
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862
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Net cash provided by operating activities
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58,555
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57,654
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38,620
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Cash Flows From Investing Activities
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Purchase: of property and equipment
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(27,901)
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(33,543)
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(30.966)
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Proceeds from sale of property and equipment
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0
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836
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0
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Proceeds from note receivable
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250
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250
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200
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Net cash used in investing activities
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(27,651)
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(32,457)
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(30,766)
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The following text appeared in the Management Discussion and Analysis Section of Shoe Carnival's annual report:
Cash Flow - Investing Activities
Our cash outflows for investing activities were primarily for capital expenditures. During fiscal 2015, we expended 827.9 million for the purchase of property and equipment, of which. $18.2 million was for the construction and alining of new stores, remodeling and relocations. During fiscal 2014, we expended 533.5 million for the purchase of property and equipment, of which $27.2 million was for the construction and &during of new stores, remodeling and relocations During fiscal 2013, we expended $31.0 million for the purchase of property and equipment, of which $263 million was for the construction of new stores, remodeling and relocations. The remaining capital expenditures in all periods were for continued investments in technology and normal asset replacement activities.