Financial Analysis of American Eagles Outfitters and The Buckle Inc.

Introduction

One month ago, you assigned me the task of analyzing financial statements of American Eagles Outfitters (AEO) and The Buckle Inc. You indicated that we need to understand the companies’ balance sheet for the most recent year and to check whether the accounting equation balances. You also wanted to get information on how the company prepares its income statement as well as how they call it. This memo contains a summary of the analysis of the balance sheet, income statement and statement of cash flows.

Findings

For the year ended February 2, 2014, Eagles Outfitters reported total assets of $ 1,756,053; total liabilities amounted to $534,866 and total shareholders’ equity of $1,221,187. The sum of the liabilities and shareholders’ equity are equal to the total assets, hence the basic accounting equation balances. The company calls its income statement a consolidated statement of operations. It reported net sales of $1,390,322 and net income of $232,108 for the same period.

In the statement of cash flows, capital expenditure had the highest outflows of $99,939, and sale of securities had the largest inflows of $15,279 for the year end February 2, 2013. For the financing activities, repurchase of common stock had the highest outflows of $173,554 and the highest inflows of $76,401 from net proceeds of from exercising stock option.

Ernst and Young LLP audited the financial statements, and they believe that the company maintains an effective internal control for the period under review. They indicated that the amounts reported by the corporation represent a true and fair view of the financial position and operations of the enterprise.

I also reviewed The Buckle Inc. financial statements for the same period, and I found out that they reported total assets of $ 477,974. The total liabilities amounted to $188,325 and total shareholders’ equity of $ 289,649. The sum of the liabilities and shareholders’ equity are equal to the total assets, hence the basic accounting equation balances. The company calls its income statement a consolidated statement of income. It reported net sales of $499,315 and net income of $164,305 for the same period.

In the statement of cash flows, purchase of the property had the highest outflows of $30,297. Sale of investments and maturities securities had the largest inflows of $37,294 for the year ended February 2, 2013. For the financing activities, payments of dividends stock had the highest outflows of $254,633 and the highest inflows of $5,609 from excess tax benefits after exercising stock options.

Deloitte & Touche LLP audited the financial statements, and they believe that the company maintains an effective internal control for the period under review. They indicate that the amounts reported by the corporation represent a true and fair view of the financial position and operations of the enterprise.

Recommendation

American Eagle Outfitters is more than three times bigger than The Buckle Inc. based on total assets and the net sales. Small businesses are usually exposed to more risks than larger ones, because they may lack resources to mitigate the risks. Although both companies’ return on investment is almost the same, American Eagles Outfitters is the best candidate, and I would recommend we invest in it. The company has the resources to open new stores in new markets sooner than The Buckle.

Conclusion

AEO is a big company with total assets of $ 1,756,053; total liabilities amounted to $534,866 and total shareholders’ equity of $1,221,187. The Buckle has total assets of $ 477,974; total liabilities amounted to $188,325 and total shareholders’ equity of $ 289,649. Additionally, AEO reported net sales of $1,390,322 and net income of $232,108 for the same period while The Buckle reported net sales of $499,315 and net income of $164,305 for the same period.

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Lawler, E 2012, Financial reporting systems. Berrett-Koehler, California.

 

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