Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
What was Gap's RM ranking in previous years? Has it risen or fallen?

Hey LeiLei,

I'm going to take the lazy man's approach to answering your question. I have last year's Gap annual report in front of me. One of the key metrics that has deteriorated for the company over the past two years is the cash-to-debt ratio. Meanwhile, the Flowie has improved a bit. Here are those two key balance sheet ratios for the past 3 years:

FY'98 FY'97 FY'96
Cash-to-Debt 0.96 1.57 15.5
Flowie 0.89 1.01 0.96

The most exciting thing on the income statement side has been the acceleration of sales growth:

FY'98 FY'97 FY'96
Sales Growth 39% 23% 20%

So, I believe the increased debt has been justified by the awesome sales growth -- all while keeping tight control of its working capital (as evidence by the steady-to-declining Flowie). Of course, in the years ahead, we'd like to see the flush cash from operations pay down that debt. If Gap can't do that, then there's a problem.

Okay, now let me try to veer this discussion back to your original question. Because of Gap's historically low gross and net margins, the company has never scored overly high on the Rule Maker system. And, the recent plummeting of the cash-to-debt ratio has only worsened the situation. Compared to today's score of 43, my guess is that Gap scored higher on the system following FY'96 and lower following FY'97.

It all goes to show that these scores are a starting point for analyzing companies. The numbers tell much or the story, but it's not all wrapped up in the total score. The individual ratios and margins deserve close inspection, as well.

Hope this helps. Maybe when I get a chance, I'll run the old numbers on Gap to test my above guestimates. (You got me kinda curious.)

Fool on,
Matt
Print the post  

Announcements

When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.