Phillips-Van Heusen Corporation and Levi Strauss & Co.’s Vertical Analysis of Financial Statements

Introduction

Vertical analysis of the financial statements of a company is attempted by preparing and presenting common size statements. This analysis reflects the individual items as shown in the financial reports expressed as a percent of the total of different heads included in such reports.

Phillips-Van Heusen Corporation

From the vertical analysis of the balance sheets for the company for the year, it is noticed that the current assets as a percentage of total assets is 38.5%. This is mainly due to the smaller proportion of the cash and cash equivalent portion of the current assets. The property and equipments as a percentage to total assets in the year 2008 is 10.7%, whereas the company has a higher proportion of intangible assets at 48.9% of the total assets of the company. This shows that the company’s asset position is not very strong, as against the small percentage of property, plant and equipment.

The company has a strong stockholders’ equity with 44% of the liabilities representing the liabilities. The long-term liabilities account for 39.4% showing that the company is not a highly leveraged one. The proportion of debts and equity are within limits making the financial position of the company a sound one. Nevertheless, the character of assets is not very strong. The company carries only a small proportion of 16.6% of the total liabilities as current liabilities.

Levi Strauss & Co

The analysis of the balance sheet of the company indicates that the current assets of the company are 50% of the total assets of the company. The company must be suffering from a severe cash flow problem because the inventory and trade receivables account for 33.6% of the total assets. However, the company holds only 11.5% of the total assets as intangible assets as against the 48.9% of PHV. The company has only 14.4% of the total assets represented by property, plant and equipment.

On the liabilities side, the current liabilities are 24.3% and the long-term debts are 86.76% totaling to more than the equity of the company, resulting in a negative equity of 11.14%. There are no retained earnings available with the company. This situation shows a weak financial position of the company. A comparative analysis of the company’s balance sheets is presented in the following table.

Balances as at 2008PHVLevi
Current Assets38.5%50.4%
Property Plant and Equipment10.7%14.4%
Intangible Assets48.9%11.5%
Other Assets1.9%23.7%
Total Assets100.0%100.0%
Current Liabilities16.6%24.3%
Long-term debt39.4%86.8%
Stockholders’ equity44.0%– 11.1%
Total Liabilities100.0%100.0%

Solvency Ratios

The solvency ratios reflect business risks, representing the ability of a company to pay its debts, because the ratios indicate the amount of debts that the company would be able to handle. The ratios also represent the amount of investment that the company genuinely has, which enables the company run its operations.

Debt to Equity

Debt to equity ratio measures the net worth of the company. Debt to equity is calculated by dividing total debt by total stockholders’ equity. (Total Debt/Stockholder’s Equity)

Phillips-Van Heusen Corporation

Total Long-term Debt = 855,963
Total Equity = 956,283
Debt to Equity = 89%

Levi Strauss & Co

Total Long-term Debt = 2,593,586
Total Equity = – 333,119
Debt to Equity = – 778%

The debt to equity ratio of PVH is very high showing that the company has a lower net worth. The company has to work towards reducing the long-term liabilities before it can consider taking any more debt. The company can also reduce the debt to equity by increasing its retained earnings. In the case of Levi, the company suffers from a negative equity indicating that the stockholders’ equity has been eroded in the losses made by the company in the past. This is an alarming situation and the company has to increase its retained earnings or introduce fresh capital to make good the situation.

Debt to Assets

This ratio shows the percentage of the company’s assets that are being financed by long-term debts. This ratio is calculated by dividing the total debt by the total assets of the company (Total Debt/Total Assets).

Phillips-Van Heusen Corporation

Total Long-term Debt = 855,963
Total Assets = 2,172,394
Debt to Assets = 39%

Levi Strauss & Co

Total Long-term Debt = 2,593,586
Total Assets = 2,989,381
Debt to Equity = 86.8%

In general, no more than 50% of any company’s assets must be financed by long-term debts. The company can reduce this percentage by paying off certain portion of the long-term debts from the cash inflows of the company. In the case of PHV, only 39% of the assets are financed by the long-term debts, whereas in the case of Levi, the ratio of total debts to total assets is very high indicating that the company has borrowed heavily from the market to meet even its current liabilities, which is a dangerous position.

Conclusion

Considering the solvency ratios and the vertical analysis of the companies Philips-Van Heusen and Levi, it appears that the company Levi is undergoing severe financial stress in the absence of cash inflows. A sizeable portion of the company’s assets is locked in inventory and debtors indicating that the company has a poor liquidity position, which has resulted in heavy long-term borrowings. This situation may lead to the bankruptcy of the company. On the other hand, though the liquidity of PHV is comparatively better, the quality of its assets is not strong as the company holds about 50% of its assets as intangible assets.

Appendix

Phillips-Van Heusen Corporation
Vertical Analysis of Balance Sheet As At February 3, 2008
ParticularsUSDUSD%
Assets
Current Assets:
Cash and cash equivalents 26991412.4%
Trade Receivables net of allowances 1543557.1%
Other receivables 316221.5%
Inventories net 32222314.8%
Prepaid expenses 482952.2%
Other including deferred taxes 98100.5%
Total Current assets 83621938.5%
Property, Plant and Equipment, net 23202810.7%
Goodwill 32200114.8%
Trade names 62113528.6%
Perpetual Licensing Rights 860004.0%
Other Intangibles 332431.5%
Other Assets 417681.9%
Total Assets 2172394100%
Liabilities
Current Liabilities:
Accounts payable 1128295.2%
Accrued Expenses 2129009.8%
Deferred revenue 344191.6%
Total Current Liabilities 36014816.6%
Long-term Debt 39955218.4%
Other Liabilities including deferred taxes 45641121.0%
Stock holders’ Equity
Common stock56506
Additional Capital558960
Retained Earnings558538
Accumulated other comprehensive Loss-17384
1156620
Less: Stock held in treasury at cost-200337
Total Stockholder’s equity 95628344.0%
Total Liabilities and stockholders’ equity 2172394100%
Levi Strauss & Co
Vertical Analysis of Balance Sheet As At November 30, 2008
ParticularsUSDUSD%
Assets
Current Assets:
Cash and cash equivalents 2708049.1%
Restricted cash 36840.1%
Trade receivables net of allowances 55225218.5%
Total inventories 45127215.1%
Deferred taxes 1355084.5%
Other current assets 923443.1%
Total Current assets 150586450.4%
Property, Plant and Equipment net430070 14.4%
Goodwill241768 8.1%
Other intangible asset103198 3.5%
Non-current deferred tax601526 20.1%
Other Assets106955 3.6%
148351749.6%
Total Assets 2989381100.0%
Liabilities
Current Liabilities
Short-term borrowings18749 0.63%
Current maturities of long-term debt0 0.00%
Current maturities of capital leases1852 0.06%
Accounts payable198220 6.63%
Restructuring liabilities1410 0.05%
Other accrued liabilities269609 9.02%
Accrued salaries and wages195434 6.54%
Accrued interest payable28709 0.96%
Accrued income tax12993 0.43%
Total Current Liabilities 72697624.32%
Long-term debt1834151 61.36%
Long-term capital leases5513 0.18%
Postretirement medical benefits156834 5.25%
Pension liability382503 12.80%
Long-term employee related benefits97508 3.26%
Long-term income tax liabilities55862 1.87%
other long-term liabilities43480 1.45%
Minority interest17735 0.59%
Total Liabilities 259358686.76%
Commitments and contingencies
Temporary equity 19380.06%
Stockholders’ equity
Common stock373 0.01%
Additional paid in capital39532 1.32%
Accumulated deficit-123157 -4.12%
Accumulated other comprehensive loss-249867 -8.36%
Total Stockholders’ deficit -333119-11.14%
Total liabilities 2989381100.00%

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BusinessEssay. 2024. "Phillips-Van Heusen Corporation and Levi Strauss & Co.'s Vertical Analysis of Financial Statements." April 12, 2024. https://business-essay.com/phillips-van-heusen-corporation-and-levi-strauss-and-amp-co-s-vertical-analysis-of-financial-statements/.

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BusinessEssay. "Phillips-Van Heusen Corporation and Levi Strauss & Co.'s Vertical Analysis of Financial Statements." April 12, 2024. https://business-essay.com/phillips-van-heusen-corporation-and-levi-strauss-and-amp-co-s-vertical-analysis-of-financial-statements/.