Barnes & Noble Case
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Barnes & NobleAmber WhatleyBUS650Dr. Leon DanielMarch 14, 2015Barnes & Noble The purpose of this paper is to provide an overview of Barnes & Noble, including background information. It will also provide a financial statement review as well as Pro Forma financial statements (Balance Sheet and Income Statement) for the next two fiscal years, assuming a 10% growth rate in sales and Cost of Goods Sold (COGS) for each of the next two years. This paper will give a ratio analysis for the last fiscal year using at least two ratios from each of the following categories: liquidity, financial leverage, asset management, profitability, and market value. Additionally, it will calculate Return on Equity (ROE) using the DuPont system. Finally, this paper will evaluate the soundness of the company’s financial policies and will give a synopsis of the findings, including recommendations and rationale for whether or not to purchase stock from this company.Barnes & Noble, Inc. (NYSE:BKS) is a Fortune 500 company, the nation’s largest retail bookseller and the leading retailer of content, digital media and educational products. They currently operate 649 Barnes & Noble bookstores in 50 states (as of January 31, 2015), and one of the Web’s largest e-commerce sites, BN.com which offers the largest in-stock selection of in-print book titles with access to approximately one million titles for immediate delivery (bn.com, 2015). Nook Digital, LLC subsidiary is a leader in the emerging digital reading and digital education markets. Barnes & Noble College Booksellers, LLC operates 717 bookstores serving over 5 million students and more than 250,000 faculty members at colleges and universities across the United States. Barnes & Noble College is one of the largest contract operators of bookstores on college and university campuses across the United States. In January 2003, Barnes & Noble acquired Sterling Publishing, which has been in business for more than 60 years (bn.com, 2015).Barnes & Noble was founded by Leonard Riggio, the companys chairperson. He began his bookselling career while attending New York University in the early 1960s. Working as a clerk in the university bookstore, he became convinced that he could do a better job serving students, and he opened a competing store of his own (bn.com, 2015). With a small investment, Mr. Riggio established the Student Book Exchange (SBX) in Manhattans Greenwich Village in 1965. The store quickly became one of New York’s finest bookstores, known for its knowledgeable staff, wide selection, and great service (bn.com, 2015). By the 1970s, Mr. Riggio’s thriving business, which included six other college bookstores, acquired the flagship Barnes & Noble trade name and flagship bookstore in Manhattan, which had fallen into decline. Within a few years, Mr. Riggio transformed the Fifth Avenue store into “The World’s Largest Bookstore,” with 150,000 textbook and trade titles (bn.com, 2015).All of this information gives Barnes & Noble the appearance of a profitable and well-rounded business. However, just glancing at the financial statements can show contradicting information. Share of Barnes & Noble plunged ten percent at the end of 2014. This drop was the result of lower fiscal postings, but it was also because the company announced that it ended its commercial agreement with Microsoft (McGrath, 2015).Just a few weeks later, Barnes & Noble announced that it was spinning off its college bookstore business and plan to turn it into its own independent, publicly traded company. This announcement caused Barns & Noble stock to reach a 52-week high (McGrath, 2015). These few sentences alone show a drastically different company in just a few weeks.
The only true way to measure the profitability of a company is to review the Pro Forma statements. Generally, the pro forma gives estimates for three to five years. For this paper, only two years will be reviewed. The year 2014 will be listed so that original data used to calculate a 10% increase in sales and COGS will be visible.Barnes & NoblePro Forma Income Statement 2014201520162017Revenue6381357701949377214428493587COGS4523422497576454753566024909gross margin1857935204372922460862468678SGA expense1606936175487319303612123397depreciation expense216807238487.7262336.5288570.1taxable income3419250367.8353389.2456710.77Taxes11967.217628.7418686.2419848.77net income22224.832739.0934703.0136862Dividends—-to retained earnings22224.832739.0934703.0136862Barnes & NoblePro Forma Balance SheetASSETS LIABILITIES and EQUITY Cash340171 accounts payable735112accounts receivable143981 other CL859283Inventory1234635 total current liabilities1721645total current assets1980438 long-term debt413585PP&E (plant, property & equipment)3165179 common Stock94accumulated depreciation-2674466 retained earnings344021net PP&E490713 TOTAL LIABILITIES and EQUITY4073740TOTAL ASSETS4189938