Borders Group Inc.’s Financial Analysis

Introduction

Borders Group Inc is an international Company registered in the United States with its headquarters based at Ann Arbor, Mic. It specializes in selling books, CDs, DVDs, and Magazines. The company was started in 1971 by two brothers Tom and Louis when they were still undertaking their undergraduate and graduate studies at the University of Michigan. Borders Group is the second largest international bookseller in the United States after Barnes & Noble. Over the recent period borders has been finding it very rough following the entrance of new players in the US markets. With the current economic and financial crisis clients are forced to squeeze their purchasing power in order to match into the current prevailing economic circumstances. (Answers.com,2007).
The profitability of Borders has been declining gradually since 2005. This has been attributed to over expansion programs witnessed during the years 2006 and 2007. The management has already made a decision to reduce some of its stores both international and domestic. This is viewed in the wider context as a strategy to concentrate core business activities in the United States. The declining profitability has also been attributed to underperformance of some stores i.e. the sale of bookstores in the United Kingdom and Ireland. Borders also sold its paper Chase business to Pershing Square Capital management at $ 65m and Ireland business of 42 bookstores and 28 books all sold to Equity Group Capital partners at 20m pounds. (Thomson Reuters,2009).
The discontinued operations shown on the income statement below represents losses incurred as a result of closing down stores in the United Kingdom as well as in Ireland. Other incomes include those earned through franchising business where Borders uses its brand name in other countries. A notable example is in Australia and Ireland. Borders group believe that their brand name has a lot of business potential that is too difficult to be ignored. Dan Smith who is the current chief Administrative Officer has been a good friend of mine since 2004 and this is why I had an access to this data. (Answers.com,2007)
Borders Group is a company that believes in customer focus and creativity. Over the past period the company has designed new systems featuring development of a concept store; this comprised the implementation of destination business which strategically distinguishes the company’s domestic superstores from competitors. This feature also included best coffee café and a paper chase shop which seeks to double profitability by increasing sales. This saw an increment in short-term investments from $ 80m to $ 108m. (Thomson Reuters,2009).
The figure for goodwill shown in the statement represents excess in value received from the franchising business. There has been no amortization for the periods from 2000 to 2008 since the goodwill is expected to increase as the world diverts its attention to franchising business. The figure for liabilities includes long term borrowings during the year 2006/2007. This was meant to ease the cash flow problems experienced as a result of overexpansion programs experienced during the two consecutive financial years. (Answers.com,2007).
The financial statements have been prepared using the Generally Accepted Accounting Principles of the United States of America. In accordance with the International Financial Reporting Standards. (Thomson Reuters,2009) For further Analysis and comparisons please see the financial statements that follow.

Borders Group Income Statement for financial years 2005, 2006, 2007and 2008.

The Balance sheet