Chicos FAS Inc Financial Accounting - Case Study Example

FINANCIAL ACCOUNTING Summary. Chicos FAS Inc. was formed in 1983.The company was man d to provide brands that are related to women who are 35 years and above. The company consists of four portfolios of brands: Chicos, White House/Black market, Soma intimate and Boston proper. The company business environment consists of the external and internal environment. The external environment consist of the care of the employees, the use of the information systems that significantly change the sale of the business and the legal claims that tend to shake the business. The external factors include the suppliers whose economy seems to fluctuate possing a threat to the business and the competitors that offer the same products. The income statement has reveals that there has been reduced from 66.5% in 2012 to 63.8% in 2013.This means that the businesses has been reducing in terms of performance on sales. This could intern reduce the profitability of the company. The general expenditure has decreased from 45.5% in 2012 to 45.0% in 2013. The general expenditure has decreased from 45.5% in 2012 to 45.0% in 2013. Gross margin has increased from 55.8% in 2012 to 56.2% in 2013.The gross margin reveals operations of the business. It is increasing significantly and this implies that the company has a lot of money to spend on other business operations including marketing. The earning per share (EPS) has increased from 0.20 in 2012 to 0.21 in 2013. The auditors claimed that the statement presented the true and fair value. This implies that there were zero misstatements in the statements. There was no omission of figures and that all disclosures were revealed. There was audit evidence involving receipts to confirm the transaction. The statements were therefore presented in a free and fair value. The market price of common stock of Chico fluctuated in the past and it may continue fluctuating in the future. The reason for fluctuation includes sale and profitability results, quarterly variation in operating results or comparable sales or changes in earning s estimates by analysis among other factors. The business is undergoing same risks. This involves the risks associated with the online and catalog operations and reliance on foreign sources of production. This shakes the economy of the business. 2. Business overview. Chicos FAS Inc. deals with brands that are related to women who are 35 years and above. The company consists of four portfolios of brands: Chicos, White House/Black market, Soma intimate and Boston proper. The overall portfolio serve a broad age and economic demographic with house incomes ranging from $ 50,000 to over $100,000. The business commenced in 1983 and to date it has 1472 stores across 48 states. The company mail catalogs and operate the e-commerce websites and all centre which sell its merchandise both nationaly.The business environment mainly consists of the external and internal environment. Internal environment. Human Resourse.The Company’s goal is to make substantial profits. The company has no bargaining agreement and therefore is mandated to take care of employees through incentives and promotions so as to encourage them to meet the goal of the business. The company has approximately 23700 employees of whom 30% are full time. Management information systems. The company uses the information systems to obtain, analyse and act upon given information on a timely basis and also to maintain effective financial and operational controls. This is to ensure efficiency in the firm. Production capacity. The company is growing significantly with an increase of stores to 1472.This enables the sale to increase and therefore the recording of more sales and profitability. Legal claims. The company is not currently in any legal proceedings, other than various claims arising in the normal course of business, none of this claims is believed to have a material adverse effect on our consolidated financial condition or results of operations. External environment Competitors. The woman’s retail apparel business is highly competitive and includes local, national and international departments. Its major competitor includes the American Apparel that ventures in the same business. Suppliers. China has been the major company’s supplier. It supplies about 55% of the company merchandise.However, because of the decreased capacity and cost of labor increased in China, the company decides to transition to other countries at the beginning of the fiscal year 2013. 3. Financial statement analysis. Income statements. This statement has been consolidated to show overall profits that the firm has accrued. The income statement has reveals that there has been reduced from 66.5% in 2012 to 63.8% in 2013.This means that the businesses has been reducing in terms of performance on sales. This could intern reduce the profitability of the company. The general expenditure has decreased from 45.5% in 2012 to 45.0% in 2013. Gross margin has increased from 55.8% in 2012 to 56.2% in 2013.The gross margin reveals operations of the business. It is increasing significantly and this implies that the company has a lot of money to spend on other business operations including marketing. This can be attributed to the strategies that have been put in place including increased e-commerce sales. The earning per share (EPS) has increased from 0.20 in 2012 to 0.21 in 2013.This is put in place to express the corporations net income after the taxes and to reveal that the firm is doing well. 2013 2013 Gross margin 56.2% 55.8% Figure 1 Statement of financial position. The working capital of Chico FAS Inc reveals its ability to pay its current liability using current assets. Working capital =Current assets – current liabilities= 597993-302411 =295582 This will reveal a good ratio. Its is safe for the company as there is implications that the company is in a good position to settle its debtors and that it has no reason of selling its assets to pay debts and therefore the firm has no liquidity problems. Ordinarily the greater the working capital, the more likely it will be to make its payments on time. Chico FAS will be in a position to make payment on time since it has a significant working capital. The quick ratio will measure the firm’s ability to meet its short term obligations with its liquid assets. Quick ratio= {(Cur.Ass-Inv)/Cur.lia)=597993-206849/302411=1.29 This ratio is high and it implies that the company’s liquidity is in good position. Statement of cash flow. The cash from investing activities has increased from $140M to $ 180M.This implies that the income of the business increase and therefore the profit increased significantly. Free cash flow =Cash from oper. Act – cash expenditure 2012 =255181-(-293) =255474 2013 =368273-(-248367) =616640. The free cash flow has increased significantly meaning that there is enough money left after the company using it to the expenditure and that the company is on the safer side. 4. Review of report of independent registered public accounting (auditors opinion) The independent Auditor was Ernest and young LLP who gave the opinion to the board of directors and the general shareholders of Chico FAS Inc.The statements were the responsibility of the management and not the auditors. The auditors were not involved in the computation and thus their legal duty was to express an opinion. The auditors claimed that the statement presented the true and fair value. This implies that there were zero misstatements in the statements. There was no omission of figures and that all disclosures were revealed. There was audit evidence involving receipts to confirm the transaction. The materiality concept was present. This also shows that the statements were prepared in accordance with the US generally accepted accounting principles. They also involved the use of the Standards of the public company accounting oversight of United States. 5. Common stock and marketing Trading analysis. There has been a price stock volatility. The market price of common stock of Chico fluctuated in the past and it may continue fluctuating in the future. The reason for fluctuation includes sale and profitability results, quarterly variation in operating results or comparable sales or changes in earning s estimates by analysis among other factors. The stock market in general during that fiscal year had experienced extreme prices of security of many public companies for the reasons frequently and related to that outstanding operating performance of the specific company. The company goal is to establish financial targets that are both sustainable and that reflect strong growth metrics. The company believes in delivering long term objectives that will increase the sales and the diluted earnings per share which enables it to provide shareholders with substantial value depending on the sales. 6. Current development. There are adverse outcomes of litigation matters and other claims against the company.This matter if not dealt with could raise complex factual and legal issues which will be subjected to multiple risks and uncertainities.However, the assessment of the company shows that the current litigations could change due to the discovery of facts and thus this will liberate the company form cases. The company involves the storage and transmission of customer’s personal information. Shopping, preferences and credit card information. The company has implemented measures to prevent security breaches and security incidents. 7. Risks that the company accrues. Risks Associated With Our Online and Catalog Operations. The company sells its merchandise over the Internet where each of our brands has its own websites. The websites are Dependent on the technology. This therefore causes numerous risks including unanticipated operating problems, technological change, failure of the systems that operate the websites, reliance on the third party computer hardware and software providers, viruses, telecommunication failures, systems and data breaches, denial of service attacks, spamming, phishing attacks and computer hackers. Reliance on foreign sources of production. The majority of the clothing and accessories are produced outside the United States. Therefore, the business is subject to the various risks that are involved in business in foreign markets and importing merchandise from abroad. These risks include geo-political instability, Foreign Corrupt Practices Act requirement, and new legislation relating to import quotas that may limit the quantity of goods imported into the United States from other countries, increased duties, taxes, and other charges on imports, foreign exchange rate challenges presented by implementation of U.S. Other risks include the local business practice and political issues, including issues relating to compliance with the Terms of Commitment to Ethical Sourcing and domestic or international labor standards, transportation disruptions, including port strikes, natural disasters, delays in the delivery of cargo due to port security considerations or government funding, and seizure or detention of goods by U.S. Customs authorities. In particular, the company continues to source a substantial portion of our merchandise from China. The change in the Chinese exchange rate and other policies affecting labor laws in China negatively impacted merchandise costs. The company could not predict whether or not any of the foreign countries in which its clothing and accessories are currently, or in the future may be produced, will be subject to import restrictions by the United. Read More