Activities of Nordstrom and the Gap

Financing Activities Analysis of The Gap, Inc. and Nordstrom, Inc.
Financial Statement Analysis
April 24, 2013
Introduction
The Gap, Inc. and Nordstrom, Inc. are retail companies with similar aspirations, yet different business strategies. Both strive to be top competitors in the retail industry and have generated and maintained a steady customer demand for their products and services. Their journeys to competitiveness in this industry have been based on very different strategies, however. This report is an analysis of the companies’ financing activities in relation to management reporting versus user decisions regarding risk. Analysis of each company’s long-term debt obligations and shareholder’s equity provides a deeper…show more content…
Exhibit 3 shows each company’s annual lease payment schedules with payment amounts per year with present value (PV) amounts for determining an overall modification to long-term debt (LTD) for each company. 2012 LTD for each company was taken from balance sheets and is assumed to consist of only term loans. Both companies have other long-term liabilities, but the details of those obligations are not as clearly defined for either company as straight term loans, therefore they are omitted from this analysis to better compare the companies. The interest rates used to determine the PV of lease payments were the most current term loan interest rates given in the 10-Ks for each company. The Gap appears to have significant lease obligations and the PV of those payments for the next several years added a large amount of off-balance sheet debt to their LTD. Nordstrom’s lease obligations added to its LTD as well. The effect of adding operating lease obligations to LTD made The Gap’s debt increase dramatically to almost $2 billion more than Nordstrom’s LTD. Analysis and modification of both LTD and shareholder’s equity is needed for a clear identification of leverage. Exhibit 4 shows the major contributing factors to each company’s shareholder’s equity: common stock, additional paid-in capital, retained earnings, treasury
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