Click on Investors, followed by Financials, and then Annual Reports and Proxy. Download the latest annual report.

Question:

1. Which inventory cost flow assumption is used to measure the cost of inventory? Does The Gap, Inc., value inventory at the lower-of-cost-or-market value? If so, how is market value determined? Does this policy comply with GAAP?

2. For the three most recent years, list the amounts reported for net sales and gross profit. Is net sales increasing or decreasing? Is gross profit increasing or decreasing? Are these trends favorable or unfavorable? Explain your answer.

3. Using the financial statements, calculate the inventory turnover ratio for the three most recent years. (You will need inventory values from the 2007 and 2006 10Ks or annual reports, available on the Web site.) Did the inventory turnover ratio increase or decrease? What does this measure? What does The Gap, Inc., do to identify inventory that is slow moving and how is this inventory treated?

4. For cost of goods sold, The Gap, Inc., uses Cost of Goods Sold and Occupancy Expenses. What is included in this amount?

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...