Year 5 Year 4 Year 3 Year 2

ASSETS
Cash $350 $56 $43 $188
Marketable securities 0 465 387 51
Accounts receivable $26 $7 $10 21
Inventories $248 $201 $169 130
Prepayments $28 $24 $20 15
Total Current Assets $652 $753 $629 $405
Property, plant, and equipment, net $1,560 $1,342 $1,172 947
Other assets $8 $1 $1 0
Total Assets $2,220 $2,096 $1,802 $1,352
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable $84 $58 $79 $32
Short-term borrowing $54 $33 $0 0
Other current liabilities $276 $220 $193 132
Total Current Liabilities $414 $311 $272 $164
Long-term debt $872 $713 $629 581
Other noncurrent liabilities $265 $214 $165 12
Total Liabilities $1,551 $1,238 $1,066 $757
Common stock $1 $1 $1 $1
Additional paid-in capital $140 $139 $143 141
Retained earnings $1,076 $906 $701 520
Treasury stock ($548) ($188) ($109) ($67)
Total Shareholders’ Equity $669 $858 $736 $595
Total Liabilities and Shareholders’ Equity $2,220 $2,096 $1,802 $1,352
Source: Abercrombie & Fitch Co., Form 10-K for the Fiscal Years Ended 2002–2005.

Year 5 Year 4 Year 3

Sales $2,021 $1,708 $1,596
Cost of goods sold -1,048 -936 -893
Selling and administrative expenses -562 -386 -343
Interest expense -63 -54 -48
Interest income 5 4 4
Income tax expense -137 -131 -121
Net Income $216 $205 $195
Year 5 Year 4 Year 3
Square feet of retail space (in thousands) 5,590 5,016 4,358
Number of employees 48,500 30,200 22,000
Growth rate in sales 18.30% 7.00% 16.90%
Comparable store sales increase 2.00% -9.00% 5.00%
Source: Abercrombie & Fitch Co., Form 10-K for the Fiscal Years Ended 2003–2005.

Year 5 Year 4 Year 3

OPERATIONS
Net income 216 205 195
Depreciation and amortization 106 90 76
Addbacks and subtractions, net 13 56 49
(Increase) Decrease in inventories -34 -27 -34
Increase (Decrease) in current liabilities 125 19 60
Cash Flow from Operations 426 343 346
INVESTING
Property, plant, and equipment acquired ($185) ($160) ($146)
Marketable securities sold 4,779 3,771 2,419
Marketable securities purchased -4,314 -3,849 -2,729
Other investing transactions — — 5
Cash Flow from Investing ($280) ($238) ($451)
FINANCING
Increase in short-term borrowing $20 $4 $4
Increase in common stock 49 20 —
Acquisition of common stock -435 -116 -43
Dividends -46 — —
Cash Flow from Financing ($412) ($92) ($39)
Change in Cash $294 $13 ($144)
Cash—Beginning of year 56 43 188
Cash—End of Year $350 $56 $43
 Exhibit 5.16
Risk Ratios for Abercrombie & Fitch (Problem 5.14)
Year 5 Year 4 Year 3
Current ratio
Quick ratio
Operating cash flow to current liabilities ratio
Days accounts receivable outstanding
Days inventory held
Days accounts payable outstanding
Net days of working capital financing needed
Liabilities to assets ratio
Liabilities to shareholders’ equity ratio
Long-term debt to long-term capital ratio
Long-term debt to shareholders’ equity ratio
Operating cash flow to total liabilities ratio
Interest coverage ratio

EBIT/Interest
 Exhibit 5.18
Financial Data for Delta Air Lines, Inc. (amounts in millions, except
per-share amounts)
(Problem 5.16)
2004 2002 2002 2001 2000
Sales $15,002 $14,087 $13,866 $13,879 $15,657

Net income (loss) before interest and taxes ($3,168) ($432) ($1,337) ($1,365) $1,829

Interest expense $824 $757 $665 $499 $380

Net income (loss) ($5,198) ($773) ($1,272) ($1,216) $828
Current assets $3,606 $4,550 $3,902 $3,567 $3,205
Total assets $21,801 $25,939 $24,720 $23,605 $21,931
Current liabilities $5,941 $6,157 $6,455 $6,403 $5,245
Long-term debt $12,507 $11,040 $9,576 $7,781 $5,797
Total liabilities $27,320 $26,323 $23,563 $19,581 $16,354
Retained earnings (deficit) ($4,373) $844 $1,639 $2,930 $4,176
Shareholders’ equity ($5,519) ($384) $1,157 $4,024 $5,577
Cash flow provided by operations ($1,123) $142 $225 $236 $2,898
Common shares outstanding 139.8 123.5 123.4 123.2 123
Market price per share $7.48 $11.81 $12.10 $29.26 $50.18
Source: Delta Airlines, Inc., Forms 10-K for the Fiscal Years Ended June 2000–2004.

Delta Air Lines, Inc., is one of the largest airlines in the United States.It has operated on the verge of bankruptcy for several ye
Exhibit 5.18 presents selected financial data for Delta Air Lines for each of the five years ending December 31, 2000, to Decem
Delta Air Lines filed for bankruptcy on September 14, 2005. We recommend that you create an Excel spreadsheet
to compute the values of the ratios and the Altman’s Z-score in Requirements a and b, respectively.
REQUIRED
a.    Compute the value of each the following risk ratios.
(1)   Current ratio (at the end of 2000–2004)
(2)   Operating cash flow to current liabilities ratio (for 2001–2004)
(3)   Liabilities to assets ratio (at the end of 2000–2004)
(4)   Long-term debt to long-term capital ratio (at the end of 2000–2004)
(5)   Operating cash flow to total liabilities ratio (for 2001–2004)
(6)   Interest coverage ratio (for 2000–2004)
b.   Compute the value of Altman’s Z-score for Delta Air Lines for each year from 2000–2004.
c.    Using the analyses in Requirements a and b, discuss the most important factors that signaled the likelihood of bankruptcy
ankruptcy for several years.
mber 31, 2000, to December 31, 2004.
preadsheet

likelihood of bankruptcy of Delta Air Lines in 2005.

 2004 2002
a. (1)   Current ratio (at the end of 2000–2004)
(2)   Operating cash flow to current liabilities ratio (for 2001–2004)
(3)   Liabilities to assets ratio (at the end of 2000–2004)
(4)   Long-term debt to long-term capital ratio (at the end of 2000–2004)
(5)   Operating cash flow to total liabilities ratio (for 2001–2004)
(6)   Interest coverage ratio (for 2000–2004)

b. Working Capital/Assets: 1.2

Retained Earnings/Assets: 1.4
EBIT/Assets: 3.3
Mkt. Value Equity/Liabilities: 0.6
Sales/Assets: 1.0
Z-Score
Probability of Bankruptcy
2002 2001 2000