Question text

Analyzing, Forecasting, and Interpreting Both Income Statement and Balance Sheet Following are the income statements and balance sheets of Macy's, Inc.

Consolidated Statement of Income Fiscal Years Ended ($ millions)	February 2, 2013	January 28, 2012	January 29, 2011
Net sales	$ 27,686	$ 26,405	$ 25,003
Cost of goods sold	16,538	15,738	14,824
Gross margin	11,148	10,667	10,179
Selling, general and administrative expenses	8,482	8,281	8,260
Impairments, store closing costs and (gain) on sale of leases	5	(25)	25
Operating income	2,661	2,411	1,894
Interest Expense	425	447	513
Premuim on early retirement debt	137	--	66
Interest income	3	4	5
Income before income taxes	2,102	1,968	1,320
Federal, state and local income tax expense	767	712	473
Net Income	$ 1,335	$ 1,256	$ 847

Consolidated Balance Sheets ($ millions)	Feb. 2, 2013	Jan. 28, 2012
Assets
Current Assets
Cash and cash equivalents	$ 1,836	$ 2,827
Receivables	371	368
Merchandise inventories	5,308	5,117
Prepaid expenses and other current assets	361	465
Total current assets	7,876	8,777
Property and equipment--net accumulative depreciation 5,947 and 5,986	8,196	8,420
Goodwill	3,743	3,743
Other intangible assets--net	561	598
Other assets	615	557
Total assets	$ 20,991	$ 22,095
Liabilities and Shareholders Equity
Current Liabilities
Short-term debt	$ 124	$ 1,103
Merchandise accounts payable	1,579	1,593
Accounts payable and accrued liabilities	2,610	2,788
Income Taxes	355	371
Deferred income taxes	407	408
Total current liabilities	5,075	6,263
Long-term debt	6,806	6,655
Deferred income taxes	1,238	1,141
Other liabilities	1,821	2,103
Shareholders' equity
Common stock (387.7 and 414.2 shares outstanding)	4	5
Additional paid-in capital	3,872	5,408
Accumulated Equity	5,108	4,015
Treasury Stock	(2,002)	(2,434)
Accumulated other comprehensive loss	(931)	(1,061)
Total shareholders' equity	6,051	5,933
Total liabilities and shareholders' equity	$ 20,991	$ 22,095

Forecast Macy's fiscal 2014 income statement using the following relations.

Net sales growth	5%
Cost of sales/Net sales	59.7%
Selling, general and administrative expenses/Net sales	30.6%
Impairments, store closing costs and gain on sale of leases	$0
Interest expense	no change
Premium on early retirement of debt	$0
Interest income	no change
Income tax expense/Income before income taxes	36.5%

• Round all answers to the nearest whole number.

• Do not use negative signs with your answers in the income statement.

Income Statement, Fiscal Years Ended ($ millions)	2014 Estimated
Net Sales	Answer
Cost of sales	Answer
Gross Margin	Answer
Selling, general and administrative expenses	Answer
Impairments, store closing costs and gain on sale of leases	Answer
Operating income	Answer
Interest expense	Answer
Premium on early retirement of debt	Answer
Interest Income	Answer
Earnings before income tax expense	Answer
Income tax expense	Answer
Net Income	Answer

Forecast Macy's fiscal 2014 balance sheet using the following relations ($ in millions). Assume that all capital expenditures are purchases of property and equipment.

Receivables/Net sales	1.3%
Merchandise inventories/Net sales	19.2%
Prepaid expenses and other current assets/Net sales	1.3%
CAPEX (Increase in gross Property and equipment)/Net sales	0.9%
Goodwill	no change
Other intangible assets	no change
Other assets/Net sales	2.2%
Mechandise accounts payable/Net sales	5.7%
Accounts payable and accrued liabilities/Net sales	9.4%
Income taxes/Net sales	1.3%
Current deferred income taxes/Net sales	1.5%
Noncurrent deferred income taxes/Net sales	4.5%
Other liabilities	6.6%
Depreciation expense/Prior year gross PPE	7.3%
Common stock and APIC	no change
Treasury stock	no change
Dividends/Net income	24.3%
Long-term debt payments required in fiscal 2014	$461
Long-term debt payments required in fiscal 2015	$481
Short-term debt	$0

HINTS for forecasting 2014 Long-term debt balances:

1. Forecasted Current maturities of L-T debt = Feb. 02, 2013 Short-term debt balance minus Long-term debt payments required in fiscal 2014 plus Long-term debt payments required in fiscal 2015.

2. Forecasted L-T debt = Feb. 02, 2013 Long-term debt balance minus Long-term debt payments required in fiscal 2015.

Instructions:

• Round answers to the nearest whole number.

• Do not use negative signs with your answers in the balance sheet.

Balance Sheet ($ millions)	2014 Estimated
Assets
Cash and cash equivalents	Answer
Receivables	Answer
Merchandise inventories	Answer
Prepaid expenses and other current assets	Answer
Total current assets	Answer
Property and equipment, net	Answer
Goodwill	Answer
Other intangible assets, net	Answer
Other assets	Answer
Total assets	Answer
Current Liabilities
Current maturities of L-T debt	Answer
Merchandise accounts payable	Answer
Accounts payable and accrued liabilities	Answer
Income taxes	Answer
Deferred income taxes	Answer
Total current liabilites	Answer
Long-term debt	Answer
Deferred income taxes	Answer
Other liabilites	Answer
Shareholders' equity
Common Stock	Answer
Additional paid-in-capital	Answer
Accumulated equity	Answer
Treasury stock	Answer
Accumulated other comprehensive loss	Answer
Total shareholders' equity	Answer
Total Liabilities and Equity	Answer

b. What does the forecasted adjustment to balance the accounting equation from part a reveal to us about the forecasted cash balance and related financing needs of the company? Explain.

Macy's will generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, increasing total assets.

Macy's will generate sufficient cash for the coming year. The cash balance increases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

Macy's will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.

Macy's will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust short-term debt, increasing total assets.