Question

Cabela. This is worth 32 points. Following are selected disclosures from Cabela's Inc. (an outdoor adventure superstore): Property and equipment consisted of the following at the years ended: Depreciable Life in Years (in thousands) 2016 2015 Land $ 364,694 $ 325,576 Buildings and improvements 7 to 40 1,311,941 1,181,704 Furniture, fixtures, and equipment 3 to 15 905,739 834,656 Assets held under capital lease Up to 30 12,979 12,979 Property and equipment 2,595,353 7 2,354,915 Less accumulated depreciation and amortization (833,956) (707,183) 1,761,397 1,647,732 Construction in progress 45,812 163,570 $ 1,807,209 $ 1,811,302

Answer 1

Requirement a: Compute PPE turnover for 2016 as follows

PPE turnover for 2016            = Sales Revenue ÷ Average PPE, Net

                                                = $4,129,359 ÷ (($1,761,397 + $1,647,732) ÷ 2)

                                                = 2.52 times

The PPE turnover level of the company is 2.52 and this level is higher when compared to median of 1.3 for all publicly traded companies and therefore the company is not capital intensive.

Requirement b. In both the cases the depreciation is zero. Land is not a depreciable asset as it has indefinite useful life and no depreciation on construction in progress will be provided until the related asset is ready for use in the operations of the company.

Requirement c. Compute useful life of its depreciable assets as follows

Average useful life      = Depreciable asset cost ÷ Depreciation Expense

                                    = ($1,311,941 + $905,739 + $12,979) ÷ $150,163

                                    = 14.85 years

Requirement d. Compute percentage of assets used up as follows

Percentage of assets used up = (Accumulated Depreciation ÷ Depreciable asset cost) × 100

                                                = ($833,956 ÷ ($1,311,941 + $905,739 + $12,979)) × 100

                                                = 37.39%

An asset used up ratio is used in forecasting future cash flows. A higher assets used up ratio is a sign that the company may incur higher level of capital expenditure in the near future to replace the aging assets or higher maintenance costs.