Pier 1 Imports: Analyzing Financial Statements 1. Why did cost of goods sold decrease in FY2007?
2. If you (as management) would like the gross profit margin in 2007 to be equal to the gross profit margin in 2006, what would gross profit equal assuming sales remain the same in 2007?
3. Are you pleased with the 2007 SG&A costs? Explain.
4. Assuming all Revenue and Expenses stay the same except SG&A, what would you like SG&A expenses to equal in 2007 if the goal is to run as efficiently as the 2006 year? Show your work.
5. Describe one strategy (e.g., sales growth, margin improvements) that might have resulted in break even ($0) operating profit. Explain by showing mathematical calculations.
6. Is it logical to analyze and forecast interest expense as a percentage of sales? Explain.
7. Relative to total assets, does Pier 1 Imports have more invested in property, plant, and equipment in 2007 or 2006? Explain.
8. Relative to total assets, is Pier 1 Imports financed with more debt (i.e., total liabilities) in 2007 or 2006? Explain.
9. Did the net profit margin deteriorate in 2007 due to SGA expenses? Explain.
10. Did the Gross Profit margin deteriorate in 2007 due to SGA expenses? Explain.
11. Based on the current ratio, is Pier 1 Imports more or less liquid in 2007 vs. 2006? Explain.
12. For every $1 of assets, Pier 1 Imports has ____________ net income?
13. For every $1 of equity, Pier 1 Imports has _____________ net income?
14. List two decisions that could increase Pier 1 Import’s EPS.
15. Should Pier 1 Imports try to increase or decrease average age of inventory? Explain.
16. For every dollar of assets (i.e., total assets), Pier 1 Imports generates ______ in sales? Which ratio compares sales to total assets? What is the relevance of this ratio to income?
17. What percentage of assets (i.e., total assets) is financed with debt (i.e. total liabilities)? Equity? What ratio did you use to answer these questions?