The Accounting Function in Bank Audit: Gap Inc - Case Study Example

Introduction In this situation, Gap will learn that the marginal value of liquidity declines as company holds more cash by learning to use cash more efficiently and investing cash whenever possible (Beasley, 2006). When accounts receivable is low and accounts payable remains the same, investing in marketable securities and other short-term instruments could provide the company with a safety net. Due to these ideas, the company will become a more liquid, self-sufficient company. Plus, the CEO of the Gap Company should be aware on how employees should be treated since he should be required to treat employees as a partner in his business. From there, there, he should use Emotional Intelligence, which is a theory that managers and CEO's understand their employees emotions. This helps them to communicate effectively and it makes the employees feel they are on the page. This approach generated loyalty and challenged the employees to make the business a success. Each employee should be offered stock options and given a portion of the profits as an incentive to keep working toward higher customer satisfaction. Motivation and communication are additional ways the CEO could create happy employees. Challenging employees allows him or her to be creative and generate new ideas or product lines that will increase sales and or customer satisfaction. Listening to employees opinions is vital to success. The people who work the frontline of any business will have ideas on how to better the processes. Some companies used an approach uncommon to most CEO's; walking around the store to meet and greet the associates and customers. This approach allowed the consumers the opportunity to tell him how well he or she liked the store and offer suggestions for change. The associates liked this approach because it made him an approachable CEO who was willing to listen to employees and customers. Description of business In this report, it is apparent that the company should use strategic planning in order to deal with the issues since it determines the overall direction and goals of the organization. Consequently, strategic planning influences numerous aspects of the organization, including what, In strategic planning, a) Products and services will be provided by the business and how those products and services will be designed b) Organizational design and roles are needed by the organization. c) Performance goals are established for positions throughout the business. d) Board committees should be developed (in the case of corporations. e) Resources are needed to reach those goals, and consequently, how much money is needed to procure those resources -- ultimately, the goals determine the content of various budgets ("Develop strategic plan" 2007). Competition from similar products, changing technology and increasing costs all play their part in putting pressure on firms to keep rethinking and expanding. Mergers are more and more frequent and many businesses have expanded to become global organizations. But if growth is sometimes the only option it is also very often a risky one. Expansion demands investment of time, money and people and has to be carefully managed to bring the desired returns. Though there is a way to increase the odds of success: simple and effective communication in all directions. Gap Inc. is a leading international specialty retailer offering clothing, accessories and personal care products for men, women, children and babies under the Gap, Banana Republic, Old Navy and Piperlime brand names. Gap brand includes Gap, GapKids, babyGap and gapbody. The company also operates Gap Outlet and Banana Republic Factory Outlet stores. Our world headquarters offices are based in the San Francisco Bay Area and our product design offices are located primarily in New York City, San Francisco and London. We also have offices around the globe to support our store management, distribution and product manufacturing operations (Gap Inc) History At the heart of Gap's growth is the unique culture that has been built on the business philosophy was based on the simple idea of making the customer No. 1. They believed that by serving the customer's needs first, his business would also serve its associates, shareholders, communities and other stakeholders. It was the summer of 1969: Man took his first walk on the moon. Nearly 450,000 people gathered in upstate New York to witness the historic Woodstock concert. And Doris and Don Fisher opened the first Gap store in San Francisco. Today, Gap Inc. is one of the world's largest specialty retailers, with more than 3,100 stores and fiscal 2006 revenues of $15.9 billion. We operate four of the most recognized apparel brands in the world - Gap, Banana Republic, Old Navy and Piperlime. Every day, we look for new ways to connect with customers around the world, provide value to our shareholders and make a positive contribution in the communities where we do business (Gap Inc). Products and Services Gap's brands have a common purpose, which is to make more easy for people to express their personal style. Due to these facts, the company evolves each brand to better meet their customers' needs. This is through innovative and inspiring design while being convenient and engaging store experiences; " and by communicating with people in a way that connects to how they live, work and play" (Gap Inc). Gap offers iconic American style to customers of all ages. Since 1969, customers have looked to Gap for updated, casual clothing and accessories that help them express their own personal sense of style. Today, Gap continues to be the best destination for wardrobe essentials such as T-shirts, hoodies, great-fitting pants and denim. What began as one brand has grown to include Gap, GapKids, babyGap, GapMaternity and gapbody. Gap has become a cultural icon by offering clothing and accessories rooted in cool, confident and casual style to customers around the world (Gap Inc). Stock Exchange Within this company, outflows exceed inflows and the shortfall is being made up by a credit line that is maxed out. Along with that, an interest that fluctuates depending on the amount borrowed is also an issue for the company, which is extremely costly. The company needs to look at working capital management as an opportunity to better serve its stakeholders and improve its current economic standing. The first step for the company is to identify the issues and recognize the opportunities that exist for the company, which would be to meet short-term and long-term financial obligations through the development of effective working capital management, cash management and the revision of its present credit policy. To be a successful company, the Gap company considered group thinking and conformity so that everyone can work together. Working on a team can be very rewarding and exciting, but also frustrating if some of the team member are not committed to the team. Building a high performance team requires time, collaboration and most importantly communication. A team is described as a small number of people with complementary skills who are committed to a common purpose and approach for which they hold themselves mutually accountable. Group thinking and conformity focuses on the interpersonal transaction between managers and employee. Leaders are seen as engaging in behaviors that maintain a quality interaction between themselves and followers. The company is lacking group thinking and conformity because no one is willing to work together. In order to be an effective company, they have to conform as one so that productivity can be increased to make high profits. This effective form of communication and teamwork allowed people in the park with no problems because the team was organized and knew the proper procedure. A successful team also requires active listening, empathy, and being truly committed. By taking on a team effort, "Gap Inc. reported net sales of $932 million for the four-week period ended February 2, 2008. Net sales for the five-week period ended February 3, 2007 were $1.19 billion. For the 13 weeks ended February 2, 2008, total company net sales were $4.67 billion. Net sales for the 14 weeks ended February 3, 2007 were $4.92 billion. Net sales were $15.76 billion for the 52 weeks ended February 2, 2008. Net sales were $15.92 billion for the 53 weeks ended February 3, 2007. The company expects diluted earnings per share for the fourth quarter to be $0.33 to $0.35 on a GAAP basis. This includes a benefit of about $0.01 from favorable tax rate adjustments impacting the quarter. The company revised its guidance for fiscal year 2007 diluted earnings per share on a GAAP basis to $1.03 to $1.05 from its previous guidance of $0.92 to $0.98" (GAP Inc). When looking at changing a culture in a company, one can view it as a positive or negative change. The change of culture was positive when things went ass they had planned. Stock soared and rose after the second quarter, which is clear the company is not struggling to break above the flat-line. They found that to maintain and improve their technology more funds and resources were needed. Also the company gained thousands of customers due to satisfaction and service improvement for existing technology. The change in culture did not caused the employees more stress then necessary. According to McShane and Von Glinow (2005), organizational culture is a basic pattern of shared values, assumptions and beliefs considered to be the correct way of thinking about and acting on problems and opportunities facing an organization ( This change in culture caused employees to be at ease and the beliefs and attitudes started to change about the future of their company. They were sure about the future of the company because many employees were reconsidering staying at the company. Overall, the change of environment caused an attitude change for employees in the company. Leadership can make or break any company based on their decisions and how they approach the employees they represent. Financial Forecast Some of Gap's financial future plans are filled with uncertainties because there are important factors that could cause results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following: the risk that the adoption of new accounting pronouncements will impact future results; the risk that we will be unsuccessful in gauging fashion trends and changing consumer preferences; the highly competitive nature of our business in the U.S. and internationally and our dependence on consumer spending patterns, which are influenced by numerous other factors; the risk that we will be unsuccessful in identifying and negotiating new store locations effectively; the risk that comparable store sales and margins will experience fluctuations; the risk that we will be unsuccessful in implementing our strategic, operating and people initiatives; the risk that adverse changes in our credit ratings may have a negative impact on our financing costs and structure in future periods; the risk that trade matters, events causing disruptions in product shipments from China and other foreign countries, or IT systems changes may disrupt our supply chain or operations; and the risk that we will not be successful in defending various proceedings, lawsuits, disputes, claims, and audits; any of which could impact net sales, costs and expenses, and/or planned strategies (SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS). Conclusion and recommendations The Gap company has been profitable, which has created a huge dip in sales and revenue. It has been discovered that with this growth in technology, people have been able to compete with in the industry. For example, the typical companies are not the only ones that are fighting for the market. Gap decided that this type of competition has decreased in value of stock prices and has made the company look into different methods to increase profitability. Considering these factors, Gap must change its business model to allocate for modern growth. It is clear that if a manager cannot bring people on board with the company's vision then they will be required to take the necessary actions to ensure the company stays on track in the business transformation by involving the employees. Along with that, it is necessary to have strong leadership when competition is intensified. Therefore, companies need strong leadership so that they have the ability to be innovative enough to set themselves apart from their competitors and maintain a successful and stable structure company, which benefits the employees and the overall company. References 2008. "Gap Inc" www.gapinc.com Gap Inc. (GPS:NYSE) accessed January 8, 2009. Businessweek.com. 25 February 2008 http://investing.businessweek.com/research/stocks/snapshot/snapshot.aspsymbol=GPS "SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS". 2008. Businessweek.com. accessed January 8, 2009 http://investing.businessweek.com/research/stocks/financials/drawFiling.aspformType=10-K McShane, and Von Glinow. (2005). "Organizational behavior" (3rd ed.). New York: McGraw-Hill. Annual Income Statement Top of Form All amounts in millions of except per share amounts. Bottom of Form View: Annual | Quarterly Jan07 Jan06 Jan05 Revenue 15,943.0 16,023.0 16,267.0 Cost of Goods Sold 10,294.0 10,154.0 9,886.0 Gross Profit 5,649.0 5,869.0 6,381.0 Gross Profit Margin 35.4% 36.6% 39.2% SG&A Expense 3,945.0 3,499.0 3,781.0 Depreciation & Amortization 530.0 625.0 620.0 Operating Income 1,174.0 1,745.0 1,980.0 Operating Margin 7.4% 10.9% 12.2% Nonoperating Income 131.0 93.0 59.0 Nonoperating Expenses 41.0 45.0 167.0 Income Before Taxes 1,264.0 1,793.0 1,872.0 Income Taxes 486.0 680.0 722.0 Net Income After Taxes 778.0 1,113.0 1,150.0 Continuing Operations 778.0 1,113.0 1,150.0 Discontinued Operations -- -- -- Total Operations 778.0 1,113.0 1,150.0 Total Net Income 778.0 1,113.0 1,150.0 Net Profit Margin 4.9% 6.9% 7.1% Diluted EPS from Total Net Income ($) 0.93 1.24 1.21 Dividends per Share 0.32 0.20 0.09 Read More