Access the latest annual report, or Form 10-K, of a publicly-traded merchandisin
ID: 2816015 • Letter: A
Question
Access the latest annual report, or Form 10-K, of a publicly-traded merchandising company of your choice using the company’s website or http://www.sec.gov. You can usually access from a company’s website by clicking on investor relations, then annual reports, and search for latest form 10K. From the SEC website (www.sec.gov), search for the selected company’s name and then search for its latest form 10-K. Using form 10-K of your selected company, answer the following questions in an essay format.
Identify the inventory costing method the merchandising company uses. Based on the industry for the company and what you learned this week, is this the common and appropriate method used in the industry?
Determine the amount your selected merchandising company reported for inventories for the two most recent years.
Compute the dollar amount change and percentage change in inventories between the two most recent years on the financial statements.
What are the amounts reported for the company’s cost of sales (or cost of goods sold) for the two most recent years?
Compute the ratio of cost of sales to net sales for the two most recent years. Interpret the ratio and discuss the implications of the changes in the ratio for the two years.
Compute inventory turnover for the two most recent years (Use cost of goods sold or cost of sales and inventories). Interpret the ratio and discuss the implications of the changes in the ratio for the two years.
Compute days in inventory. Interpret the ratio and discuss the implications of the changes in the ratio for the two years.
What conclusions can the merchandising company’s management draw from these data and ratios computed above?
The company is TJ MAXX below is a direct link to the 10K Form it is to large to upload a picture of a link is the only possible way to have all the information. Or any company that you would like to use just needs to be current info. Thanks
http://investor.tjx.com/phoenix.zhtml?c=118215&p=irol-sec#15561359
Explanation / Answer
The TJX. Inc (TJX) companies is an apparel and home fashion retailer in the United States and world wide. The company uses the retail method for valuing its inventory. According to this method the cost value of inventory and gross margins are derived by finding out the cost-to-retail ratio and then applying it to the retail value of inventory.
The retail method of costing is an easy and common way to value inventory in a retail industry like Abercrombie & Fitch Co and TJX. However, it just gives an estimated value and works well only if proper markups and markdowns are done by the retailer across all product sold. However, as the annual report suggest the company has policies in place to when and how markdowns are to be taken, greatly reducing management’s discretion and the need for management estimates as to markdowns resulting in insignificant difference in the estimated shrinkage and actual shrinkage value.
All the data and calculation are there in the excel data below
Merchandising inventories from the balance sheet for FY2016,FY2017,FY2018
Cost of good sold from the Income statement of FY2017 and FY2018
Cost of sales to net sales has been stable over the last two years and indicates the company has been consistent in managing its costs involved in generating the sales.
Inventory turnover is also the same over the period with 6,4 and 6,5 turnover ratio for FY2017 and 2018 respectively. On a standalone basis, the turnover ratio has been robust.
Inventory Turonver Ratio = Cost of goods sold/ Average Inventory
Average inventory=(Begining inventory+closing inventory)/2
Days in Inventory = 365/Inventory turnover. It is 56.8 days and 56 days for 2017 and 2018 respectively. Higher inventory turnover days indicates a slower turnaround on sales. However, TJX has been again consistent in managing its turnover days and is able to convert its inventory into sales in an average of 56 days.
All the values and ratios related to inventory are almost constant over the last two years which indicates that there has been a stable inventory management. Also, an average inventory turnover ratio and low days in inventory indicates a good inventory management and is a reason why there is a rapid turnaround of inventories relative to traditional retailersfor TJX companies.