Question

Horizontal Analysis Bed Bath and Beyond, Inc. Income Statement	12 Months Ended In Thousands
	Mar. 03, 2018	Feb. 25, 2017	Amount	Percentage
Net sales	$ 12,349,301	$ 12,215,757	$ 133,544	1.09%
Cost of sales	7,906,286	7,639,407	$ 266,879	3.49%
Gross profit	4,443,015	4,576,350	$ (133,335)	-2.91%
Selling, general and administrative expenses	3,681,694	3,441,140	$ 240,554	6.99%
Operating profit	761,321	1,135,210	$ (373,889)	-32.94%
Interest expense, net	65,661	69,555	$ (3,894)	-5.60%
Earnings before provision for income taxes	695,660	1,065,655	$ (369,995)	-34.72%
Provision for income taxes	270,802	380,547	$ (109,745)	-28.84%
Net earnings	$ 424,858	$ 685,108	$ (260,250)	-37.99%

Horizontal Analysis Pier 1 Imports, Inc. Income Statement	12 Months Ended In Thousands
	Mar. 03, 2018	Feb. 25, 2017	Amount	Percentage
Net sales	$ 1,798,522	$ 1,828,446	$ (29,924)	-1.64%
Cost of sales	1,140,372	1,131,138	$ 9,234	0.82%
Gross profit	658,150	697,308	$ (39,158)	-5.62%
Selling, general and administrative expenses	576,878	587,843	$ (10,965)	-1.87%
Depreciation	53,603	54,603	$ (1,000)	-1.83%
Operating income	27,669	54,862	$ (27,193)	-49.57%
Nonoperating (income) and expenses:
Interest, investment income and other	(2,590)	(2,470)	$ (120)	N/M
Interest expense	12,362	12,073	$ 289	2.39%
Nonoperating (income) and expenses	9,772	9,603	$ 169	1.76%
Income before income taxes	17,897	45,259	$ (27,362)	-60.46%
Income tax provision	6,271	15,130	$ (8,859)	-58.55%
Net income	$ 11,626	$ 30,129	$ (18,503)	-61.41%
N/M designates not meaningful and is used when the base year is zero or negative.

1. Examine revenue and related accounts. Revenue is the largest item on the income statement, so we need to assess it on a quantitative and qualitative basis.

a. Explain what horizontal analysis is and why it is useful in the analysis process. Compare the horizontal analyses for the income statements of the two companies that I have prepared in the Excel Horizontal Analysis attachment.    Analyze each company over the last two years to identify two account changes that should be investigated for each company. Do not reference a computed figure on the income statement like Gross Margin, but a specific account. Why did you pick these items?

b. Read the management’s discussion and analysis (MD&A) section of the 10-Ks, which is found in Item 7 of the table of contents. Explain how the companies’ senior managers explain sales and net earnings (income) in the most recent fiscal year. Provide the page number(s) you are using from the 10-K as your reference to this question.

c. Find the footnote or notes to the financial statements on the operations of the business and/or what their segment(s) are. Provide a short summary of what the company considers their business and segments. Also, provide the page number you found this information. Remember that the notes to the financial statements are an integral part of the financial statements, so are part of Item 8 and follow the audited financial statements. Provide the page number you found this information.

d. Find the footnote or notes to the financial statements on sales revenue recognition and gift card revenue recognition policy if applicable. Provide how the company recognizes revenue. Also, compare the revenue recognition to each other.

Answer 1

A
Horizontal analysis is the process in which we compare financial statements or financial ratios across a number of years to track the growth and progress of the company. It is also known as trend analysis. It helps to analyze whether the company is improving or declining.

Uses of Horizontal analysis
It helps the management of the company to understand how well a company is doing in order to make decisions. It also helps in taking strategic decisions. It provides the management with an insight that whether there is need to improve the future performance of the company or not.
It helps the investors to make the decision whether they want to invest or sell their current investment; while management needs to know what moves to make in order to improve the future performance of the company.
It is an extremely useful tool for anyone trying to track a company’s performance over time.

Bed Bath and Beyond, Inc.
The net sales of the company has increased by $133,544 or 1.09% within a year. This shows the increase in the demand of the products of the company.
However, The cost of sales have increased much more than the net sales. To be specific, there is an increase of $266,879 or 3.49% within a year.
As the cost of sales has increased much more than net sales. This implies that gross profit of the company will not have increased although there is an increase in net sales.

Pier 1 Imports, Inc.
The net sales of the company has decreased by $29,924 or 1.64% within a year. This shows the decrease in the demand of the products of the company.
However, The cost of sales have increased only $9,234 or 0.82% within a year.
Decrease is net sales along with increase in the cost of sales means decrease in gross profit.

Net sales and cost of sales are major accounts to know about the revenues of the company. Therefore, I used these accounts to do horizontal analysis.

NOTE - Complete information regarding part B, C and D is not given.