Access the company’s public website and search for its most recent annual report. (Some companies provide access to their financial data through an “investor relations” link, while others provide a
direct link to their “annual reports.”) . After reviewing the annual report for your selected company, answerthe following questions:
a. Calculate the total debt to total assets ratio for the past two years. Is the company principally debt-financed or equity-financed? Do you agree with this strategic decision?
The following table shows Michael Kors total debt to total assets ratio for the past two years.
Total debt $ Total assets $ Total debt to total assets ratio
2017 $133.1 $2,409.6 0.055%
2016 $2.3 $2,566.8 0.0009%
The increase of debt ratio has increased since 2016. It shows that the company is debt-financed.
b. Review the company’s long term debt footnote. What kinds of debt-bonds, notes, zero-coupon bonds- does the company have outstanding? Are the debt instruments denominated in U.S. dollars? If
not, why not?
The Michael Kors has the outstanding notes; the debt instrument is denominated in U.S. Dollars.
c. What is the company’s weighted average cost of debt? What is the company’s return on assets? Can the company use leverage effectively?
Net Income $ in Millions Total Assets $ in Millions Return on Assets
$552.5 $2,409.6 22.92%
d. Does the company use leases to finance any of its assets? If so, what kind of leases – operating or capital – does the company use?
e. Calculate the company’s interest coverage ratio for the past two years. What is the trend in this ratio? Why? What is your assessment of the company’s liquidity and solvency? What did you
base your opinion on?
EBIT $ in Millions Interest Expense $ in Millions Interest coverage ratio
2017 $900 $4.1 529.41
2016 $1,175 $1.7 691.17
1. Review the company’s commitments and contingent liabilities footnote. Describe the company’s existing commitments. Is the company involved in any litigation? If so, what kind?
Commitments and Contingent liabilities
2. Does the company have any pension or retirement plans for its employees? If so, are they defined benefit plans or defined contribution plans? Are the plans underfunded or overfunded? If so,
by what amount?
The Company maintains defined contribution plans for employees, who become eligible to participate after three months of service. Features of these plans allow participants to contribute to a plan
a percentage of their compensation, up to statutory limits depending upon the country in which a plan operates, and provide for mandatory and/or discretionary matching contributions by the Company,
which vary by country. During Fiscal 2017, Fiscal 2016, and Fiscal 2015, the Company recognized expenses of approximately $9.1 million, $10.1 million, and $5.8 million, respectively, related to
these retirement plans (Michael Kors Holdings Limited, 2017).
3. Does the company use derivatives to hedge its business risks? If so, what kinds of derivatives does it use and what kinds of business risks are being hedged?
The company does not use derivatives for trading and speculative purposes but for interest rate and foreign currency exchange risks.
4. Does the company have any deferred income taxes on its balance sheet? If so, are the deferred income taxes an asset or a liability? Is the amount of deferred income tax asset or liability
increasing or decreasing? What might explain this increase or decrease?
Deferred Income Taxes
No, the company does not have any deferred income taxes on its balance sheet. They are in fact an asset. Since 2016, the deferred income tax asset is increasing. The following table shows the
deferred income taxes for the year 2016 and 2017.
A. How many common shares are authorized, issued, and outstanding? What is the par (or stated) value of the common stock? What is the company’s market capitalization?