A: Working Capital / Total Assets (Liquidity)

This ratio determines liquidity.  The working capital of a company is a way to determine the overall financial health of that company.  GAP Inc. does not have consistent working capital over the last 5 years making it fluctuate from increasing to decreasing over the years. 

B: Retained Earnings / Total Assets (Long Term Profitability)

This ratio determines long term profitability for a company. A company that has a high RE to TA ratio uses its RE to fund capital expenditures. The ideal ratio for Retained Earnings / Total Assets is 1:1. GAP Inc. ratio is far below 1:1 this means that they heavily rely on borrowing money to make sure they are profitable in the Long term.

C: EBIT / Total Assets (Short Term Profitability) 

The purpose of C or the EBIT to Total Assets Ratio is to show the short-term profitability of a company. This is an essential metric that allows us to analyze how efficiently companies are at generating revenue, specifically from their assets.  GAP Inc. has struggled during 2021 and 2023 but has currently been able to get back on track throughout this past year. There are still very far from the ideal 1:1 ratio which would put them at the best position. 

D: Market Value of Equity / Total Liabilities (Leverage)

The leverage ratio MV/Total Liabilities calculates the market value, which is done by taking the number of outstanding shares and multiplying it by the stock price in relation to its total liabilities. This ratio is important because it provides insight to how the market sees a company's financial health and risk. GAP Inc. has had increasing MV Equity / Total Liabilities which does not put GAP Inc. in the best position. Their most recent ratio is at .9258 which means that about 92% of its total liabilities is equal to the market value of the company's equity. This could possibly be a good opportunity if an investor believes that they are undervalued. 

E: Sales / Total Assets (Efficiency)

The purpose of this ratio measures assets efficiency, indicating how effectively a company uses its assets to generate sales. If a company has a higher ratio, it shows that the company needs a smaller investment to generate sales with the goal to have greater profitability. At the same time, a lower ratio shows that the company requires the most possible resources to achieve sufficient sales. Throughout the last 5 years, GPS has held a substantial ratio above 1.0 with staying consistent around the same range. The only year with a major spike is in 2019.

Capital Leases

The first major point that stands out to me is within the Total Capital Leases and the major drops in all three categories including Other Long-Term Assets, Accrued Expenses and Other Liabilities as well as Other Long-Term Liabilities. Some of the reasons for these major decreases could have been more change in restructuring the current assets that they had as well as revenue that was not yet recorded. Because of this major drop this dramatically has a change on the Leases as a percentage with major increases because the large makeup of the Leases out of the Total. 

Short-Term & Long-Term Liabilities 

Short-Term Liabilities (Current Liabilities)

• Accounts Payable: This has been in an increase besides the down year in beginning of 2023. The latest year is around the average at what it has been at. 

• Accrued Expenses: The most recent year has been the highest for GAP inc. over the past 5 years but has been inconsistent with dramatic drops and increases. 

• Current Portion of Leases: Over the past 5 years there has been a slight decrease over time. This means that the total portion of lease liabilities that needs to be paid within the next fiscal year has decreased.

• Current Income Taxes Payable: This is definitely the lowest compared to the other current liabilities with very little variance. 

• Unearned Revenue, Current: There is very little change over the last 5 years but there is not current number for this liability.

•  Other Current Liabilities: The most recent year has a significant drop in Current Liabilities with minor changes during the past years. This might be because the data was taken from GPS 10K not with all of the data recorded for 2023.

• Total Current Liabilities: The overall Current Liabilities tend to fluctuate with increasing and decreasing years with the most current year being the lowest it has been at. 

Long-Term Liabilities

• Long-Term Debt: Long-Term Debt is debt that GAP does not need to take care of within the first 12 months and has more time to pay back over time. It has increased and decreased over the years but in 2023 it is at one of its lowest points meaning that there are being effective in what they need to pay back especially in long-term investments. 

• Long-Term Liabilities: Overall, the trend for long-term leases in decreasing over the years with the current year being the lowest meaning that they could have paid off these liabilities or they had a decrease in spending towards long-term assets. 

• Other Non-Current Liabilities: Over the past 5 years there has been slight increases besides the most recent year meaning that some of the lease agreements could have changed or another possibility is because of deffered revenue that has not yet been recognized. 

Link to Excel: The Gap Inc NYSE GPS Financials MASTER.xlsx