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Part 3 Financial Analysis Case mainly relates to the textbook Modules 5 and 6, but works off your knowledge from Modules 1-4, too. In addition, defe
ed taxes is discussed in Module 10 Pages 10-24 to 10-29, which you should read over before completing Part 3.
Instructions: Use this Word Document as your template to complete Part 3. Answer the questions under each of the applicable areas in black font. Upload your completed Part 3 template by clicking on the Part 3 Financial Analysis Case link you are more than welcome to delete these instructions in your submission. Please save your file with the initial of your first name and your last name. Use single space with proper English. I will take off .25 pts. for each grammar and spelling e
or. Please answer the requirements in the order they are set up on the template, which follows the requirements listed below. Include your name on the first page of the submission. Use the 10-K Document for each company, which is linked below. Answer the following questions for each company using the 10-K document and the Horizontal Analysis I provided on a separate Excel workbook. You can use direct references from the reports, but make sure you explain or comment in your own words. Do not use the interactive Data file to answer Part 3 of the Financial Analysis Project. The author of the text uses the reference of footnotes to the financial statements and many company’s use notes to the financial statement, these are synonymous terms. It is important for you to understand that the notes to the financial statements are an integral part of the audited financial statements, so should not be ignored in your analysis.
J.C. Penney Company Inc. (Ticker: JCP) for year ended Feb. 1, 2020 Direct link to 10-K https:
Kohl’s Corporation (Ticker KSS) for year ended Feb XXXXXXXXXXDirect link to 10-K https:
data/885639/ XXXXXXXXXX/kss-10k_ XXXXXXXXXXhtm
Requirements: The questions are highlighted in red. Please respond to each question using black font below each question.
1. Examine revenue and related accounts. Revenue is the largest item on the income statement, so we need to assess it on a quantitative and qualitative basis.
a. Explain what horizontal analysis is and why it is useful in the analysis process. Compare the horizontal analyses for the income statements of the two companies that I have prepared in the Excel Horizontal Analysis attachment. Analyze each company over the last two years to identify two account changes that should be investigated for each company. You need to specifically identify the percentage change on the horizontal analysis provided for each company in your response. Do not reference a computed figure on the income statement like Gross Margin, but a specific account. Why did you pick these items?
. Read the management’s discussion and analysis (MD&A) section of the 10-Ks, which is found in Item 7 of the table of contents. Explain how the companies’ senior managers explain sales and net earnings (income) in the most recent fiscal year. Provide the page number(s) you are using from the 10-K as your reference to this question.
c. Find the footnote or notes to the financial statements on the operations of the business. Provide a short summary of what the company considers their business and segments. Provide the page number you found this information. Remember that the notes to the financial statements are an integral part of the financial statements, so are part of Item 8 and follow the audited financial statements.
d. Find the footnote or notes to the financial statements on sales revenue recognition and gift card revenue recognition policy if applicable. Provide how the company recognizes revenue. Provide the page number you found this information. Also, compare the revenue recognition to each other.
2. Examine the income tax expense on the income statement, the defe
ed tax assets and liabilities on the balance sheet, and the applicable footnotes or notes to the financial statements for both companies for the cu
ent year in the 10-K. Answer the following questions:
a. Complete the table provide below with the following information: total provision for taxes or Total income tax expense (benefit) and provide the Federal cu
ent and federal defe
ed portions for each company from the footnotes or notes to the financial statements. JCP has Federal cu
ent and Foreign lumped together so reference the total provided. Provide the page number you found this information.
Total Provision for taxes or total income tax expense(benefit)
Page number reference
. Read the footnotes or notes to Kohl’s financial statements and and give the cu
ent company’s total effective rate. Is it a consistent rate from the previous years? Comment on the changes. JCP did not provide rates in the notes.
c. Using the footnotes or notes to the financial statements give the category and dollar amount of the largest defe
ed tax asset and defe
ed liability for each company. Explain why defe
ed taxes occur. Defe
ed taxes are covered in Module 10 pages 10-24 to 10-29.
3. Focus on Accounts Receivable, bank credit cards, and cash and cash equivalents.
a. Explain is your own words what is Accounts Receivable is and if a company did have accounts receivable, which financial statement would this account appear?
. If a company has accounts receivable, which financial statement would this account appear? What section and subsection would this account appear in, if a company has accounts receivable? Do these companies show an account titled “accounts receivable” on a financial statement?
c. Review the notes to the financial statements and explain where the company includes bank credit cards. Provide the page number of where you found this note.
d. Explain what a bank credit card is and compare how each of the companies recognize bank credit cards.
4. Analyze the inventory account and answer the following questions using the financial statements and notes to the financial statements:
a. Explain what merchandise inventory is for these two companies. Which financial statement shows inventory? What section of the statement does this account appear? What has been the dollar change from the past year for each company? Make sure you identify the dollar amount change and if it is an increase or decrease.
. Using the footnotes or notes to the financial statements identify the inventory costing method each company is primarily using. Provide the page number of the note you are referencing.
c. Compute the average day’s inventory outstanding for the cu
ent and past year for each company and show your calculations. Review pages 6-12 and 6-13, which shows the formula as 365 times Average Inventory/ Cost of Goods Sold. To determine the average inventory use the cu
ent year and past year inventory divided by 2, since the ending inventory of one year is the beginning inventory of the next year. Cost of Goods Sold is the same thing as Cost of Merchandise Sold. Round to the nearest day. You can find this information on the cu
ent 10-K except for the following information for 2018 Inventory for JCP $2,803 in millions and KSS $3,542 in millions. Comment on your results including a comparison of the 2 companies. You must show your work to earn full credit.
d. Does the company face any inventory related risk? You need to use the 10-K Part 1A Risk Factors for both companies and find one risk factor that relates to inventory. Comment on the risk factor you picked for each company. Provide the page number that you are referencing in this question.
e. Compute Days Payable Outstanding (DPO) for the cu
ent and past year for each company and show your calculations. Review page 6-14, which shows the formula as 365 times Average Accounts Payable/Cost of Goods Sold. ***You want to pick up the accounts payable that relates to the purchase of merchandise, so for JCP use Merchandise Accounts Payable. Cost of Goods Sold is the same thing as Cost of Merchandise Sold. Round to the nearest day. You can find this information on the cu
ent 10-K except for the following information for 2018 Accounts Payable for JCP $973 in millions and KSS $1,271 in millions. Comment on your results including a comparison of the 2 companies. You must show your work to earn full credit.
Round to the nearest day.
5. Analyze the net fixed assets (PPE-Property, Plant, and Equipment) and answer the following questions:
a. Look at both companies’ financial statements in respect to Property Plant or equipment or fixed assets owned by the corporation. Are net fixed assets significant for the companies? What percentage of total assets is held as fixed assets for the cu
ent year? You can use the vertical analysis you developed in Part 2 to identify this percentage. What financial statement did you look at to find the fixed assets?
. Using the notes to the financial statements, answer the following questions for each company and provide the page number of your reference. What exactly are the companies’ fixed assets are as listed in the notes? What depreciation method are they using for financial reporting?
c. Are any long-lived assets impaired per the notes to the financial statements for each of the companies? Provide how each company determines impairment of asset per their notes. Provide the amount of impairment loss each company stated in the notes to the financial statements. Provide the page number of the note you are using as a reference.
d. Did the company buy any fixed assets during the year using cash? Provide the name of the financial statement you used to determine if the company bought fixed assets for cash, provide the amount purchased in cu
ent year, and the section of the financial statement you found this information in along with the label used to show that cash was paid for fixed assets? Companies use different labels when they are purchasing fixed assets, so make sure you do not overlook this cash purchase, which might be worded differently.
e. Compute the PPE turnover (Total Revenue/Average PPE Assets, net) for the cu
ent and past year for both companies? Show your calculations and show 2 decimal points. Please review pages 6-25 and XXXXXXXXXXYou can find this information on the