Gap Inc Future

GAP Inc.

Comparative Balance Sheets

Gap Inc.’s 2006 balance sheet under assets shows a significant increase in the combined merchandise inventory and other current assets of $188 million and a slight decrease in their cash and cash equivalent by $5 million. Their short-term investment and restricted cash plunged -40% and -20% respectively losing $393 million. This was a result of Gap Inc.’s repurchasing their common stock shares and an increased in their capital expenditures. Common stock repurchases increased Treasury stock 19.8% or $1 billion; dropping outstanding shares to 43,116 from the previous year. Additional paid-in capital increased by a healthy $229 million at the same time decreasing long-term debt by -63% or $325 million as a result of the repurchase plan. Gap Inc.’s decrease in income tax payables to -81% for a savings of $69 million resulted from favorable tax rate settlement. Accrued expenses which comprises of payroll and related benefits, deferred rent liability and other current liabilities; climbed to $97 million up 13% from 2005; further increasing their current liabilities to $330 million up 17% from 2005.

Comparative Income Statements

Gap Inc.’s, suffered a substantial decrease in earnings for the year 2006 compared to 2005. A drop of $335 million or -30% from the previous year in earnings is attributable to the following reasons. A slight increase in the cost of goods expense which comprises of: merchandise cost, inventory losses, freight charges, production, insurance, rent, maintenance cost, real estate taxes, utilities and other associated expenses; cost Gap Inc. $140 million more than the previous year. An increased in operating expense of $351 million compared to 2005, was partly due to increased in marketing efforts which cost $91 million, an increased of $169 million in payroll for adding 1000 more employees, an increased of $32 million for shared-based compensation, $61 million for sublease loss reserve reversal, and readjustment in elapsed time associated with unredeemed gift cards. Gap Inc.’s had 3,131 retail stores in 2006 compared to 3,053 from the previous year. It is also Gap Inc.’s business practice to discount slow selling items in order to reduce inventory which decreased profit margins. Interest expense decreased by $4 million due to lower debt levels. Even though interest income from investments increased 40.86% compared to 2005, this only added $38 million to its earnings and was not sufficient to overcome the above losses. In 2005, Gap Inc. was able to reduce their operating expense by deciding not to run their holiday television ads. They also reduced their bonuses to employees which further decreased their operating expense. CEO Fisher summed up Gap Inc.’s