GAP Case Study Essay

Improved Essays
In the past year, the company GAP has seen a steady decrease in their stock prices which has been caused by a couple of different things. A change in management and poor communication within new management has caused sales to steadily decrease. One effect of this poor communication in management is that GAP’s inventory is not well organized, which hurts the net cash flow of the company. The old system used to order inventory was “by gauging the response [to the product], the management [was] able to forecast demand properly and release an appropriate production order to vendors and suppliers…” (“Gap Inc Left”). When the old manager left, “…it was expected that others would continue to build on his good work…” (“Gap Inc Left”). However, the …show more content…
Because of this the net cash provided to them from operating activities is lower than it could be if they let their inventory shrink a little. For example, let’s say that GAP’s net income for the year is around $200,000, and they have a depreciation expense of $10,000, a decrease in accounts receivable of $3,000, an increase of inventory of $30,000, and an increase in accounts payable of $15,000. This would leave them with net cash provided by operating activities of $198,000. Because GAP has increased their inventory by $30,000 but has only received $3,000 from accounts receivable, they are not recouping the cash spent on their inventory. Now if GAP re-implemented the old manager’s strategy of when to buy inventory, GAP could have more cash from operating activities. One way for GAP to gage when to buy more inventory could be based on how much accounts receivable goes down and then multiple that number by maybe 1.5 so they would order just a little more inventory for the next month. To show this, I will use the $3,000 decrease in accounts receivable from the previous example. So with the $3,000 decrease in accounts receivable, you should multiply 3,000 by 1.5 to get 4,500. By doing this they will only increase their inventory by $4,500 instead of the $30,000 they did before. With this little change their new net cash provided by operating activities is now $223,500. By doing this, they change the amount of net cash they receive and therefore save $25,500 that was unnecessarily being bought for

Related Documents

  • Brilliant Essays

    This is likely due to the increased inventory on hand that was not sold during the fiscal year. Even though the company technically had more assets, less of it was considered liquid because it was in inventory, less current assets, a drop in intangible assets, and a rise in current liabilities. GameStop went from 1,655.7 million in 2010 up to 1,747.8 million in 2011. The factor that made up the bulk of this difference was accounts payable, which indicates that there were probably loans taken out to cover the expansion of the company. Since the only real direct competitors of GameStop are giant retailers like Best Buy and Wal-Mart, they probably have more liquid assets available.…

    • 1701 Words
    • 7 Pages
    Brilliant Essays
  • Decent Essays

    The above graph shows a huge decline in POSCO’s ROE. The increase in net income couldn’t catch up to the increase in shareholders’ equity. The ROE increased in 2008 due to a decrease in shareholders’ equity (scare of recession). Since POSCO showed good returns in 2008 the investments increased which led to a decline in ROE. Earnings per Share (EPS) Earnings per share gives the profit allocated to each of the shareholder with one share.…

    • 995 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Explain. No, because the incremental Return on New Investment is lower at 16.5% compared to the required 18%. Proposal #2 would establish local collection centers throughout the region to decrease the time it takes to convert credit payments that are mailed in by check to cash. It is estimated that establishing these collection centers would reduce the average collection time by 3 days. 1) If the company currently averages $30,000 in collections per day, how many dollars will this suggested cash management system frees up?…

    • 452 Words
    • 2 Pages
    Decent Essays
  • Great Essays

    Be Our Guest Case Analysis

    • 1591 Words
    • 7 Pages

    Although net income decreased 22.8% from 1995 to 1997, because depreciation increased 25.8% from 1995 to 1997, the total net income adjusted for non-cash charges increased by 4% from $250,000 to $259,000, from 1995 to 1997. The changes to Accounts Receivable over the years reduce cash flow from operations by $75,000, $46, $42,633 in 1995, 1996, and 1997, respectively. These increases in accounts receivable cause the cash flow from operations to decrease because Be Our Guest, Inc. collected less money from their customers compared to the sales. Whereas, the changes in Accounts payable & accruals of, $5,768, $19,063, and $14,859, in 1995, 1996, and 1997, respectively, caused the cash flow from operations to increase because Be Our Guest, Inc. is paying their suppliers less, indicating they are retaining more cash for…

    • 1591 Words
    • 7 Pages
    Great Essays
  • Superior Essays

    Accounts Receivable Turnover The accounts receivable turnover measures the efficiency of the company in relation to the collection of short-term receivables. - Throughout the period the turnover increased for Speedy Deliveries from 9 to 11 times. Accounts receivable are owed to the business and is therefore cash owned by the business. Lack of controls in place to ensure prompt collection of accounts receivable results in a decrease of the opportunities from cash. - Both Fast Go and the industry as a whole have turnovers higher than Speedy Delivery, at 16 and 20 times respectively.…

    • 1339 Words
    • 6 Pages
    Superior Essays
  • Improved Essays

    The lack of employees has produced an initial increase in monetary savings but the prolonged effects of not having adequate employees will yield a large decrease in the revenues over an extended period Fd gqert q4tq gqert notice a lack of employees manning the store. If you have a question about a product good luck trying to hunt someone down to assist you with your inqucdtrt;qwerkqwe’r233343240234l’iry. Often times you will feel as if you are the only one in the store. This is due to the fact that TheStore has trimmed the company employees down below an acceptable level for conducting normal business operations. The lack of employees has produced an initial increase in monetary savings but the prolonged effects of not having adequate employees will yield a large decrease in the revenues over an extended period Fd gqert q4tq gqert notice a lack of employees manning the store.…

    • 52230 Words
    • 209 Pages
    Improved Essays
  • Superior Essays

    This, according to the article I read would save around 1.5 trillion dollars. This means that the previous estimate of 3 trillion drops down to 1.5 trillion, and the actual tax increase is only 17.8% rather than 35.7% (Santens). This extra 17.8% does not have to apply to all tax brackets (the higher brackets could be taxed more), but for the sake of equality, let’s say it does. Say Joe earns $20,000. He gets taxed this extra 17.8%, meaning his tax burden goes up $3,560; he still receives a basic income of $12,000 a year though, so he actually gets an extra $8,440…

    • 1255 Words
    • 5 Pages
    Superior Essays
  • Brilliant Essays

    Sample Assignment: Part of the content removed Orica's cash flow is also very low covering only (XX) of their total liabilities (a significant drop from (XX) in 2011). The main impacts resulting from its payment to suppliers and employees ($820m increase over 2011), increased debt (as shown by the debt ratios) and weak cash flow generation (a $210m decrease from 2011). With smaller cash flow from operations, Orica needs to either…

    • 2157 Words
    • 9 Pages
    Brilliant Essays
  • Improved Essays

    in the case of Noni B Ltd, share dividends were only declared at the end of the year. Considering that the competitors had declared quarterly and semiannual dividends, the company lacked investor support. Share value market loss Over the last twelve months, the market price of company’s stock has fallen drastically. This is a risk factor at a time that the company may be seeking more investors in order to reclaim their position in the market. 6.…

    • 737 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    Betting Vs Bookies

    • 1205 Words
    • 5 Pages

    The investment may be dissolved very quickly without losses, which means putting your money into flexible savings accounts that usually only produce a small amount of interest. You need to add to your emergency fund every month. This means it is going to grow increasingly large as time goes on, but if you are building wealth correctly, then you will need a larger emergency fund. The point of an emergency fund is to help ensure you do not dip into your investments in any way. It is your guarantee of future wealth.…

    • 1205 Words
    • 5 Pages
    Improved Essays