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Module 2-Foot Locker, Inc.

Module 2-Foot Locker, Inc. Taylor Blaney. Module 2-Overview. Enterprise Operations vs. Financing Activities Enterprise Operations- business activities that are the purpose of the business Financing Activities- borrowing and lending to aid business purpose Reformulation

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Module 2-Foot Locker, Inc.

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  1. Module 2-Foot Locker, Inc. Taylor Blaney

  2. Module 2-Overview • Enterprise Operations vs. Financing Activities • Enterprise Operations- business activities that are the purpose of the business • Financing Activities- borrowing and lending to aid business purpose • Reformulation • Separates income, assets, and liabilities of enterprise vs. financing • Necessary step to find NEA and EPAT and to forecast future NEA and EPAT

  3. Net Enterprise Assets-NEA • Finding which assets and liabilities are part of the enterprise operations • Threshold for cash is typically 2% of net sales • Some classes may have both enterprise and financing activities involved in them, typically included if some enterprise activity can be assumed

  4. Foot Locker, Inc. Balance Sheet

  5. Foot Locker, Inc. Balance Sheet-Cont. • Included in Enterprise Assets:

  6. Foot Locker, Inc. Balance Sheet

  7. Foot Locker, Inc. Balance Sheet-Cont. • Included in Enterprise Liabilities:

  8. Final NEA • Subtract Enterprise Liabilities from Enterprise Assets to get Net Enterprise Assets-NEA

  9. Net Financial Liabilities-NFL • NFL is the amount of financial assets less the financial liabilities that a company has in a given year • Foot Locker, Inc.’s NFL:

  10. Foot Locker, Inc. Balance Sheet

  11. Reformulation Check • To check if work is correct take NEA and add or subtract Net Financial Assets or Liabilities, total should equal stockholders equity section

  12. Enterprise Profit After Tax-EPAT • Involves income items that are associated with enterprise operations • Take items from the statement of earnings to compute • Adjusted for tax that was due to financing activities

  13. Foot Locker, Inc. Statement of Operations

  14. Computation of Enterprise Earnings Note: Leave out Interest Expense as a financing expense

  15. Income Tax on Enterprise Operations • Must separate out the amount of income tax that is allocated to enterprise operations vs. financing activities • Use a 37% tax rate to allocate amount of tax attributed to financing activity • The only financing activity on the statement of earnings was interest expense

  16. Calculation of earnings from continuing operations enterprise vs. financing (in millions)

  17. Calculation of earnings from continuing operations enterprise vs. financing (in millions), cont.

  18. Calculation of earnings from continuing operations enterprise vs. financing (in millions), cont.

  19. Computation of Enterprise Profit After Tax-EPAT

  20. Computation of Financing Expense After Tax-FEAT • The part of earnings that is not attributable to enterprise activities, these are the financing expenses

  21. Checking Work • After calculating EPAT and FEAT you can check to see if calculations were correct • EPAT= Enterprise Profit After Tax • FEAT= Financing Expense After Tax • To check, subtract FEAT from EPAT, the total should equal Net Income on statement of earnings

  22. Checking work

  23. Foot Locker, Inc. Statement of Operations

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