Financial Accounting: Gap Inc.

Introduction: Gap Inc. information

Founded in 1969 by Doris and Don Fisher, the first Gap store opened in San Francisco with the concept of a simply store for customers to shop a wide range of fits and styles. Gap is one of the world's most recognized brands providing clothes, accessories, and personal care products for men, women, children, and babies. Today, there are more than 3,000 stores in the United States, Canada, The United Kingdom, France, and Japan. Excluding Gap which expands the brand to GapKids, babyGap, GapBody, and GapMaternity, Gap Inc. also operates three apparel brands which are Banana Republic, Old Navy, and Forth & Towne. Each brand has its own characteristics to serve customers:

- : Serving men and women customers, Gap offers fresh and casual American style of clothes such as jeans, T-shirts, outerwear, sleepwear, or underwear and accessories such as bags, shoes or belts. Gap brand focuses on assortments for going to work, going out and the casual weekend. Also, boys, girls, babies, and maternities are the target group of GapKids, babyGap, and GapMaternity.

- : Gap Inc. provides the high-quality attire and accessories collections including jewelries in the brand name of Banana Republic. The casual luxury brand's products are affordable for men, women, and petites. The brand is classified into such lifestyles such as luxury lovers, partygoers, voyagers, or sportsmen.

- : The original purpose of this brand is to offer great fashion at great prices for adults, children, and infants. Old Navy is the fashionable and affordable shopping destination that the whole family can enjoy shopping in pleasurable environment. Besides clothing for everyone, Old Navy also offers a variety of accessories such as shoes, handbags, and toys.

- : The latest brand expanded from Gap Inc. is Forth & Towne. Launched in fall 2005, Forth & Towne focuses on women over 35. Its outfits are appropriate for all occasions, work-life, play-life, and life-life. Moreover, Forth & Towne reflects diverse lifestyles under four different brands which are Vocabulary, Allegory, Prize, and Gap Edition.

Besides the stores located in five countries, Gap Inc. provides an alternative for customers to shop online. The web-based stores are available at gap.com, bananarepubilc.com, and oldnavy.com.

Gap Inc., the leading global specialty retailer, operates by Paul Pressler as President and CEO, and Robert Fisher as Chairman of the Board. Among the competitors like Abercrombie & Fitch Co., American Eagle Outfitters Inc., and J. Crew Group, Inc., Gap Inc. is still growing its business and generating sales with strong performance.

Financial ratios

Year 2001 2002 2003 2004 2005 Desired Trend Time Analysis Industry # Industry Analysis

Current ratio 0.95 1.48 2.11 2.63 2.81 Increasing Good 2.28 Good

Acid-test ratio 0.15 0.49 1.34 1.31 1.37 Increasing Good 0.96 Good

Working capital -151.0 1022.5 3013.1 4156.0 4062.0 Increasing Good n/a n/a

Inventory turnover ratio 5.11 5.28 5.00 5.27 5.62 Increasing Good 4.57 Good

Days sales in inventory 71.44 69.07 73.00 69.27 64.94 Decreasing Okay 76.1 Good

AR turnover ratio n/a n/a n/a n/a n/a Increasing n/a n/a n/a

Avg. Days to collect AR n/a n/a n/a n/a n/a Decreasing n/a n/a n/a

Debt to equity 1.39 1.55 1.71 1.30 1.04 Decreasing Okay 0.26 Not good

Times interest earned 19.45 3.21 4.22 8.20 12.21 Increasing Okay 24.31 Not good

Return on assets 16.0% 1.4% 8.3% 12.3% 12.7% Increasing Good 12.15% Good

Return on equity 34.0% -0.3% 14.3% 24.8% 24.0% Increasing Okay 23.29% Good

Earnings per share 0.99 -0.03 0.55 1.15 1.29 Increasing Good n/a n/a

*EPS Growth -1.03% -19.33% 1.09% 0.12% Increasing Not good 13.88% Not good

Price-earnings ratio 32.93 -480.00 26.60 16.16 17.06 Increasing Not good 23.31 Not good

Dividend yield 0.28% 0.63% 0.62% 0.48% 0.41% Increasing Not great 0.90% Not good

*Industry number updated on December 13, 2005

Comparative Balance Sheet - Vertical Analysis

GAP Inc.

Balance Sheet

For the Year Ended

2005 2004 2003

ASSETS

Current assets:

Cash and equivalents 22.34% 21.11% 30.57%

Short term investments 8.13% 10.02% 3.16%

Restricted cash 10.10% 12.61% 0.50%

Cash and equivalents, short term investments and restricted cash 40.58% 43.73% 34.23%

Merchandise inventory 18.05% 15.91% 20.68%

Other current assets 4.11% 2.93% 3.06%

Total current assets 62.74% 62.57% 57.97%

Property and equipment, net 33.60% 33.85% 38.14%

Other assets 3.66% 3.58% 3.89%

Total assets 100.00% 100.00% 100.00%

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Current maturities and long term debt 0.00% 2.64% 5.05%