Ryan Gu

FMA Deliverable 2
Perkal 3:30-4:45

Marketable Securities
Per Ralph Lauren’s 10K, marketable securities are labeled under short-term investments. There
is little information within the 10k in regards to the reasoning as to why the accounts historically
have decreased in value, so I assigned a reasonable 1, 2, and 3 percent for my growth
assumptions.
Accounts Receivable
Using the DSO formula, I found days outstanding using an above aggregate average of the past
two historical years. Per the 10k, Ralph Lauren stated that they decided to change and improve
their vendor payment terms, therefore increasing their DSO. That is why I chose to make the
DSO lower than the average stated in the past historical years.
Provision for Returns
My provision for returns was calculated using the income statement projections from the past
deliverable as a percentage of net revenue. I made my deductions as a percentage of additions a
standard number, with base case 100 percent, bear case 103 percent, and upside case 95 percent.
Inventory
Using the DIO formula, I projected days inventory outstanding using historical data. There was
nothing in the 10k describing any changes to their DIO, and therefore I used 112 days as the base
case due to it being in the middle of the two historical data points.
Income Tax Receivable
Within the income tax receivable portion of the 10k, Ralph Lauren stated that they had very
unfavorable changes within their account. I used a growth rate for the bull case that was a lower
margin than the bear case because of this footnote. The bull case was 3.5%, base case 3%, and
bear case 2%.
Prepaid Expenses
Prepaid expenses were largely negative for the FYE 2020, and slightly positive for FYE 2021.
However, it would not make sense to use an aggregate average of the two numbers as a constant
largely negative prepaid expense account would cause the asset account to decrease much more
than realistically possible. Therefore, I used a safe number of 2% bear case, 3% base case, and
4% bull case.
Provision for Doubtful Accounts
My provision for doubtful accounts growth rate was calculated using the income statement
projections from the past deliverable as a percentage of net revenue. I made my deductions as a
percentage of additions a standard number, with base case 100 percent, bear case 103 percent,
and upside case 95 percent.
D&A
Plant, Property, and Equipment within Ralph Lauren had different useful lives, with land and
improvements and buildings and improvements having a useful life ranging from 10-40 years. I
chose to use an average useful life of 20 years for these assets as it was as close to an average life
as I could find according to the depreciation tables. Conversely, furniture and fixtures,
machinery, capitalized software, and leasehold improvements had an average life of 3 to 7 years.
I therefore chose to use an average life of 5 years to continue granularity and also to use a
number that was easy to use with the depreciation table. Total Capex for the year was 107, and
there were 7 D&A items that were subject to depreciation. Therefore, I used the percentages plus
1 to estimate the total Capex per line item.
Operating lease right-of use Assets
There was not much information within the 10k for operating use right of assets, and so I
followed the course model and assigned a bear case of 3.6 percent, a base case of 3.8 percent,
and a bull case of 3.9 percent.
Accumulated Amortization
Accumulated amortization for my intangible assets was calculated by using an aggregate average
of 9.2 years of useful life for intangibles. I assumed that there were no future purchases as that
would be inaccurate to forecast given the information on the 10k, and so I amortized the 2021
ending balance of 121.1. Using the calculations and the amortization table, I found that the
intangibles would be fully amortized within the third year, with only 11.67 to be amortized in
2023. Therefore, the ending balance that I used for the subsequent years (2024, 2025, 2026) were
0.
Intangible Assets
Amortizable intangible assets within the context of Ralph Lauren consisted of re-acquired
licensed trademarks (Gross carrying amount of 231.7 in 2021), customer relationships (Gross
carrying amount of 254.3), and other (Gross carrying amount of 10.1). Trademarks and brands
(GCA of 7.3) have worth in perpetuity, and were therefore considered not subject to
amortization. As mentioned within the accumulated amortization, I forecasted the intangibles
would be fully amortized by 2023. I know that there would be new purchases, but my logic was
that it would be safer to do no purchases that to but an arbitrary number for the sake of keeping
intangibles a positive number.
Other Non-Current Assets
Other non-current assets are not directly specified within the 10k, but some of the makeup is
described as restricted cash, time deposits, and cloud computing arrangements. In the past two
historic years, the growth rate was negative due to a shrinkage in such accounts. I kept my bear
and base case slightly negative with no growth due to the historic data, but made the bull case
grow at 0.1% per year due to their further investment into their cloud computing arrangements.
Accounts Payable
In 2021, Ralph Lauren negotiated extended payment terms for their accounts payable. Therefore,
days payable outstanding should be increased. For my growth rate, I assigned a base case
number that was higher than the aggregate average, which would hover around 50. My base case
had a DPO of 60, bull case a DPO of 70, and bear case a DPO of 55. I made my upside better
than the downside due to the aforementioned extended payment terms. I also assigned an
increasing growth rate because Ralph Lauren stated that they intended to continue negotiating
their accounts payable terms, and therefore I projected that it would continue to improve.
Deferred Income Tax
Deferred income tax was forecasted using a steady growth rate of base case 2%. I used this
number because there was little talks within the 10k about specific future deferred income tax
growth, and so I used the stable number.
Accrued Expenses
I did not use a historical average of 2021 and 2020 for accrued expenses, as they were hovering
around 20 percent and negative 20 percent, respectively. Rather, I assigned a growth rate of 2
percent base case, 1 percent bull case, and 3 percent base case.
Other Non-Current Liabilities
Other non-current liabilities consisted of deferred lease incentives, accrued benefits and deferred
compensation, restructuring reserve, and other unmentioned liability accounts.
Income Tax Payable
Income tax payable per the 10k of Ralph Lauren grew negatively in the historic two years, but
that was due to one-time payments that reduced the tax rate by numerous basis points. Therefore,
I did not want to use a tax payable rate that was negative for the future, as it would not make
sense in the context of any firm, especially if income tax receivable was also increasing.
Therefore, I used a safe estimate of the growth rate, assigning 3 percent as the base case, 4
percent as the bear case, and 2 percent as the bull case to ensure that the future projections made
sense.
Revolving Credit Facilities
Ralph Lauren in 2019 replaced its existing credit facility for a new one that provided $500m
senior unsecured credit lines. That was the number that I used for my beginning balance on my
revolving credit facilities account. However, they also had the ability to extend their line of
credit to $1b through the Global Credit Facility. The credit facility was priced at LIBOR plus
100 basis points.
Senior Notes
The types of senior notes within the 10k were variable through the three years, and so I
calculated them accordingly. In 2021, Ralph Lauren used 3.75%, 1.7%, and 2.95% senior notes.
In 2020, they did not use the 1.7% or 2.95% notes, and instead had 3.75% and 2.625% notes with
principles of 396.4m and 299.6m, respectively. They also had a borrowing outstanding under
credit facilities account with a value of 475m, for a total debt value of 1171m. The 3.75%
account was from a public offering in 2018, which issued a $400m aggregate principle. The
1.7% account was from a public offering in 2020, which issued a $500m aggregate principle. All
of the senior notes presented were issued at a discount, which explains the discrepancies between
the issued principle amounts and the true principle amounts that I used within my model.
Par Value
There are 2 types of shares within the Ralph Lauren Corporation, labeled within the 10k as class
A and class B shares. Class A shares had a par value of $1, and class B with a par value of $0.3.
Since there were no preferred shares, there was no par value accordingly. I added the two par
values together to get my par value number on my balance sheet of $1.3.
Treasury Stock
Treasury stock only had one separate line item within the statement of shareholders equity. The
line item was repurchases, which totaled 37.7, 694.8, and 502.6 for 2021, 2020, and 2019,
respectively. I forecasted it with the assumption that they would repurchase 500 shares on
average per year, using data from the historical averages in 2019 and 2020 which were 502.6 and
694.8, respectively.
Retained Earnings
Ralph Lauren’s retained earnings had a line item labeled as cumulative adjustment for new
accounting standards, which was added on to the dividends. I then did a basic forecasting using
previously forecasted net income, and dividends which were forecasted using dividends per
share (3.0) multiplied by the shares outstanding forecasted.
Cash and Cash Equivalents
Cash and Cash Equivalents was forecasted using the cash flow statement and the line items. I
was not able to get the cash to balance, and I apologize sincerely for doing so.