Introduction

Gaps Inc. is an American clothing retailer with their headquarters located in San Francisco,
California, United States. They supply clothing for a variety of audiences including toddlers,
teens, and adults, both male and female. Gap’s first store was opened by Doris and Don Fisher,
a married couple from 1969. Gap has acquired brands such as Banana Republic and Old Navy
throughout the years.
Gap currently has over 1700 company-operated and franchise retail locations all over the
world. This includes Japan, China, United States, United Kingdom, and Canada. Gap’s purpose
for opening a store was due to Doris being unable find jeans that fit her, but they never
expected Gap to revolutionize to the Retail Store that it is as of today.

FINANCIAL STATEMENTS ANALYSIS

Comparative Balance Sheet

1) The biggest change from 2017 to 2018 was the Share Holders Equity which increased by
$240,000,000. In 2018, Gaps Inc. received more merchandise and the cash and cash equivalent
was the same their liabilities decreased as well which explains the increase. This was a great
change for the company since it would allow them to expand more.

2) The second biggest change from 2017 to 2018 was the Property and Equipment which
increased by $189,000,000. This means that the company used a lot of its income to get better
equipment and property, an overall good change for the company since it means they would
get more equipment and be more up to date. However, since it they did purchase equipment,
it effected their Cash and Cash Equivalent considering it is the same amount as last years
despite having more sales overall.

3) The third biggest change from 2017 to 2018 was the Merchandise Inventory which
increased by $167,000,000. Since this is an asset, it means the company investing a lot of its
earnings into buying for . Since this is a current asset, it would have high liquidity so I'd
expect this number to stay close to or below what it currently is in the future.

Others
Some other notable changes that were also made include the Accrued Liability and Other
Liabilities which both increased, Accrued Liability increased by $157,000,000 and Other
Liabilities Increased by 130,000,000. In 2018, they bought more merchandise than the year
before and they bought more equipment to increase their value which is great for the company.
Other changes include Income Tax Payable and Current Maturities of debt which both went
down showing a good sign since the company would have more money to keep.
 GAPS INC.
COMPARATIVE BALANCE SHEET
FOR YEARS ENDED FEB. 2017 & 2018
(in millions)
Increase(+)
2014 2013 Decrease(-)
ASSETS
Current Assets
Cash and Cash Equivalents $ 1,783 $ 1,783 $ -
Merchandise Inventories 1,997 1,830 167
Other Current Assets 788 702 86
Total Current Assets 4,568 4,315 253

Fixed Assets
Property and Equipment, net 2,805 2,616 189
Other Long Term Asset 616 679 -63
Total Fixed Assets 3,421 3,295 126
Total Assets $ 7,989 $ 7,610 379

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Accounts Payable $ 1,181 $ 1,243 -62
Accrued and Other Liabilites 1,270 1,113 157
Income Taxes Payable 10 32 -22
Current Maturities of Debt - 65 -65
Total Current Liabilities 2,461 2,453 8

Long-Term Liabilities
Long-Term Debt & Obligations under Capital Lease 1,249 1,248 1
Other Liabilites 1,135 1,005 130
Total Long-Term Liabilities 2,384 2,253 131
Total Liabilites 4,845 4,706 139
Shareholders' Equity 3,144 2,904 240
Total Liabilites and Shareholders' Equity $ 7,989 $ 7,610 379
 GAPS INC
COMPARATIVE INCOME STATEMENT
FOR YEAR ENDED FEB. 2017 & 2018
(in millions)
Increase (+)
2014 2013 Decrease (-)
Revenue
Sales $16,580 $15,855 725
Interest Income $33 $19 14
Cost of Goods Sold 10,258 9,789 469
Total Revenue $6,355 $6,085 270

Expenses
Operating Expense 4,960 4,587 373
Intereste Expense, net 73 74 -1
Income Tax Expense 319 576 -257
Total Expenses 5,352 5,237 115
Net Income $1,003 $848 155

Comparative Income Statement

1) The biggest change from 2017 to 2018 was the Sales which increased by $725,000,000. In
2018, GAPS Inc. received more sales which explains the increase. This was a great change for
the company since it could potentionally mean they would get more customers in the next
few years.

2) The second biggest change from 2017 to 2018 was the Cost of Sales which increased by
$469,000,000. This would be considered a bad change for the company since it means that
they've spent more money on their goods which decreases their revenue value as a whole
affectecing their net income.

3) The third biggest change from 2013 to 2014 was the Operating Expense which increased
by $373,000,000. Since it is an expense, it means the company spent a lot of money on their
expenses considering 373 million is a huge increase, but since GAPS Inc. has a larger revenue
than their expenses, they have a positive net income in this situation.

Others
Some other small changes that were also made include the Interest Income which increased
by $14,000,000. This is very good for the company because the interest income increased so
much from last year it was almost doubled allowing Gaps to have a higher net income. This
affects the company since it is an revenue which could increases their net income value.
 GAPS INC.
CONDENSED INCOME STATEMENT
FOR YEAR ENDED FEB. 2017 & 2018
(in millions)
2018 2017
Total Revenue $6,355 100.0% $6,085 100.0%
Total Expenses 5,352 84.2% 5,237 86.1%
Net Income $ 1,003 15.8% $ 848 13.9%

Condensed Income Statement

From 2017 to 2018, there are only slight changes in the expenses and the net income. The
expenses have dropped 1.9% which is a good change for the company since they spent less of
their money on expenses. By decreased their spending on expenses, their net income value
has also gone up by 1.9%. This is a great sign for the company in 2018 since they've improved
from the year before. If this continues, GapsInc. would be very successful and have higher net
income value as years past by based on trends.

GAPS INC.
CONDENSED BALANCE SHEET
FOR YEARS ENDED DEC. 2017 & 2018
(in millions)
2018 2017
ASSETS
Current Assets $ 4,568 57.2% $ 4,315 56.7%
Fixed Assets 3,421 42.8% 3,295 43.3%
Total Assets $ 7,989 100.0% $ 7,610 100.0%

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities $ 2,461 30.8% $ 2,453 32.2%
Long-Term Liabilities 2,384 29.8% 2,253 29.6%
Total Liabilities 4,845 60.6% 4,706 61.8%
Shareholders' Equity 3,144 39.4% 2,904 38.2%
Total Liabilities & Shareholders' Equity $ 7,989 100.0% $ 7,610 100.0%

Condensed Balance Sheet

From 2017 to 2018, there are small changes in the liability section but the biggest changes are the
shareholders' equity and the curret assets. The increase in the shareholders' equity could have
been caused by the increase of the curret assets as well as the slight increase of current liabilities.
Since GAPS Inc. has been purchasing property and equipment as well as merchandise for their
stores, it is normal to have a increase in value on current liabilities. That would also explain the
reason of the increase in their current assets since they've been purchasing new materials.
 RATIOS (in millions)
2018 2017
Working Capital $ 2,107 $ 1,862
Current Ratio 1.9:1 1.8:1
Quick Ratio 0.7:1 0.7:1
Equity Ratio 39.35% 38.16%
Debt Ratio 60.65% 61.84%
Rate of Returns on Shareholders' Equity 8.30% 7.80%
Rate of Return on Net Sales 6.05% 5.35%

FORMULAS FOR RATIOS

2018
Working Capital 4568 - 2461
Current Ratio 4568/2461
Quick Ratio 1783/2174
Equity Ratio 3144/7989*100
Debt Ratio 4845/7989*100
Rate of Returns on Shareholders' Equity 1003/((2904+3144)/2)*100
Rate of Return on Net Sales 1003/16580*100

2017
Working Capital 4315 - 2453
Current Ratio 4315/2453
Quick Ratio 1783/2453
Equity Ratio 2904/7610 * 100
Debt Ratio 4706/7610*100
Rate of Returns on Shareholders' Equity 848/((2545+2904)/2)*100
Rate of Return on Net Sales 848/15855*100
Analysis of Liquidity

Working Capital :
The working capitals from 2018 and 2017 are both positive numbers which is an advantage for
the company. Having a positive working capital means the company is able to pay off their
debts very easily. This would be a great advantage for investors to invest in this company
since they would have enough cash. The increase is very visible from 2017 to 2018 with an
increas of $245,000,000. If they keep up the positive working capital, they would get more
investors each year and make more money.
Current Ratio:
The most satisfactory ratio would be 2:1 but Gaps Inc. was just on the edge of this ratio,
standing at 1.9:1 which suggests this company is able to easily pay off their debts. However in
2018, the current ratio increased by 0.1 from the previous year. Although they have surpassed
the satisfactory number, they could potentionally increase their number of investors if they
continue increasing their ratio.
Quick Ratio:
The most satisfactory ratio would be 1:1 and sadly, they have not exceeded this number by
having 0.7:1. For both years 2018 and 2017, the quick ratio has been the same number. This
ratio represents how easily the current assets could be converted to cash with their current
situation Gaps Inc. would be at a disadvantage in terms of quick ratio . However in the next
few years, they should continue to keep up the numbers to risk having it fall any lower than
the satisfactory ratio.
Equity Ratio and Debt Ratio:
Gap's Inc.'s equity and debt ratio both didnt exceeded the satisfactory standard of 50%. In
2017 their equity ratio was 38.16% but increased in the next year to 39.35%. However in both
years the ratios were both low which doesn't attract investors into the company. The debt
ratio in 2017 was 61.84% but went down in 2018 to 60.65%. This change isn't very drastic
compared to other companies however their debts couldn't be easily paid off, a good sign is
that is is slowly getting better with equity increasing and debt increasing. This is a great sign
for the company and if it continues for the next couple of years, their company would be able
to reach the satisfactory standard.
Rate of Returns on Shareholders' Equity:
From 2017 to 2018, the rate of returns only changed 0.50% which is not a very big change for
the company compared to other changes in the company. Since the rates are going up, it is a
good sign for the company and they wouldn't have to worry about this change at all.
Rate of Returns on Net Sales:
From 2017 to 2018, the change was only a difference of 0.70% of increase. This was not a big
change for the company to concern about since it wasn't a decrease. If Gaps Inc. continues
the increase, they could be very successful in the future.
Conclusion
By analyzing the finanacial statements of Gaps Inc., there are been many small changes
made from 2017 to 2018. Throughout the analysis, many increases have been made
from the previous which is a good sign towards the company. The main key change
would be the share holders equity from one year to another. The increase was incredibly
high compared to the other changes which benefits the company in many ways. This
allows people to have a positive image of your company which may arract more
shareholders to invest in this company and bring the sales even higher in the near
future. Comparing the financial statements from 2017 to 2018, it is clear that the
company is improving year by year in every aspect. After this analysis of GapsInc.'s
finanacial statements, it is clear that they have improved from the previous year and
show signs of expanding in the future. Gaps ratio all look quite decent with a few not
meeting the ratio standards including Equity, Debt, and Quick Ratio. Despite this GAP
shows a trend that it's ratios are getting better each and every year.
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