Analyzing Ability to Meet Debt Payments Sporting Life, Inc., is a large retail chain of sporting goods stores. In a recent annual report, the following information was presented.
|
(In millions) |
2004 |
2003 |
2002 |
|
Sales |
$15,833 |
$15,668 |
$15,229 |
|
Operating income |
1,455 |
1,341 |
893 |
|
Net income |
662 |
536 |
266 |
|
Interest expense |
304 |
418 |
499 |
|
Total assets |
13,464 |
13,738 |
14,264 |
|
Long term debt |
3,057 |
3,919 |
4,606 |
|
Shareholders’ equity |
5,709 |
5,256 |
4,669 |
|
Cash provided by operating activities |
1,690 |
1,573 |
1,220 |
|
Cash (used) by investing activities |
445 |
318 |
650 |
|
Cash provided (used) by financing activities |
1,080 |
1,262 |
594 |
Cash for investing activities was used primarily for property and equipment purchases. Cash used by financing activities was primarily to pay off long term debt and acquire treasury stock.
Required
A. Assume that you work for an investment firm that has an opportunity to invest in notes that are part of Sporting Life’s long term debt. Write a short report in which you analyze the firm’s ability to meet its debt payments, based on the information given.
B. Prepare a list of the most important additional pieces of information you would want before making a final decision about the investment. This list should include some accounting information; it might also include nonaccounting and nonquantitative items.