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Financial Accounting: In an Economic Context by Jamie Pratt

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REVIEW PROBLEM

The following information was taken from the 2008 annual report of Bed Bath & Beyond. All dollar values are in thousands.

Net sales for Bed Bath & Beyond increased 2.3 percent from fiscal 2007 to fiscal 2008, and 6.5 percent from 2006 to 2007. Gross profit (net sales less cost of sales) decreased over the three years, dropping from 43 percent (2006) to 40 percent (2008). Operating profit saw a similar decline, as selling, general and administrative expenses ate up a large share of sales. Analysts would view these earning power trends negatively, and might be concerned about sales growth and increased expense control in the future.

The balance sheet shows growth in total assets, with the largest change coming from short-term liquid assets. Inventories as a percentage of total assets are down, suggesting that even though profits are down, inventories are not building up. Current liabilities decreased, while current assets increased, implying greater solvency. The company has no interest-bearing debt, and retained earnings has increased.

The statement of cash flows shows that the company, even in a recession, has the ability to generate cash from its operating activities, which is being used to purchase investments, acquire long-term assets (capital expenditures), and repurchase outstanding shares of its own stock. Both the statement of cash flow and the statement of shareholders' equity show that in each of the three years (2006, 2007, and 2008) the company paid no ...

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