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project part 3 fall 2018.docx-Amaan Kidwai Company...
project_part_3_fall_2018.docx-Amaan Kidwai Company Project—part 3 Amaan
project part 3 fall 2018.docx-Amaan...
project_part_3_fall_2018.docx-Amaan Kidwai Company Project—part 3 Amaan
Page 1
Amaan Kidwai
Company Project—part 3
Amaan Kidwai
G28660612
GAP
1)
Enter the projected numbers from part 2 of the project.
For net PPE, I used the capital expenditure method, however, I made a change. Earlier in
my project, I had deducted Land, Buildings from projected depreciation expense, this time, I
have not. The updated numbers look like:
Projected net PPE = this year PPE + Projected capital expenditures – projected
depreciation expense
this years PPE = 2,805
typical dep rate = Dep Exp
0
/ Gross PPE
-1
– Land
-1
– Construction in progress
-1
)
= 559/ (8429 – 1000
– 222)
= 559/ 8207
= 0.06811
Projected Depreciation Expense = typical depreciation rate * (Gross PPE – Land
- Construction
in project)
= 0.06811 * (8767 – 1037
– 264)
= 0.06811 * 8503
= $ 579.139 million
The capital expenditure decreased from 726 to 524 and to 731 in 2017. As they mention in the
report, they will be opening more stores and investing in capital expenditures, we can assume
that it will marginally increase to 745.
Projected net PPE = 2805 + 745 – 579.139
= $ 2970.861 million
2)
Forecast selling, general and administrative expenses (or some components of that cost
category) using your forecast for revenues and a forecast for the selling, general and
administrative expenses to revenue ratio.
As part of your answer calculate the current
selling, general and administrative expense to revenue ratio (or whatever part of that you
are projecting). Do not simply project based on trends.
Use information from MD&A
and other locations to discuss factors that may affect the ratio.
Discuss how you came up
with the projection


Page 2
Amaan Kidwai
GAP does not report SG&A separately and includes them in one cost of goods sold and other
occupancy expense. As such, I have decided to calculate their advertising cost to revenue and
project it.
“Advertising expense was $673 million, $601 million, and $578 million in fiscal 2017, 2016, and
2015, respectively, and is recorded in operating expenses in the Consolidated Statements of
Income”
Current Advertising cost/Revenue 2018 = 6731/15,855 = 0.0424
From GAP’s risk factors: “Our brands have wide recognition, and our success has been due in
large part to our ability to maintain, enhance and protect our brand image and reputation and our
customers’ connection to our brands. Our continued success depends in part on our ability to
adapt to a rapidly changing media environment, including our increasing reliance on social
media and online dissemination of advertising campaigns
. Even if we react appropriately to
negative posts or comments about us and/or our brands on social media and online, our
customers’ perception of our brand image and our reputation could be negatively impacted.
Failure to maintain, enhance and protect our brand image could have a material adverse effect on
our results of operations.”
From the above, we can see that they plan to invest on advertising campaigns. The trend shows
that they have reduced their amount of spending in this area, however, due to the increased focus
we can estimate that it will increase the ratio marginally to 0.04.
Projected Advertising cost 2019 = current advertising cost/revenue ratio * Projected Revenue
= 0.04 * 16,251
= $650.04 Million
3)
Forecast accounts receivable assuming the accounts receivable turnover ratio stays the
same.
Projected AR turnover ratio= Current AR turnover ratio = Rev / Avg AR
= 15,855 / [(335 + 282)/2]
= 51.393
Projected AR = Projected Rev / projected AR turnover ratio
= 16,251/ 51.393
= $ 316.21 Million
4)
Project dividends.
Cash dividends paid last year : 361 million
We paid an annual dividend of $0.92 per share in fiscal 2017 and fiscal 2016. We intend to
increase our annual dividend to $0.97 per share in fiscal 2018.


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