Financial Statement Analysis

Office Depot:

1. Revenue Recognition – Revenue is recognized at the point of sale for retail transactions and at the time of successful delivery for contract, catalog and internet sales. The company uses historical customer patterns to estimate sales returns.Revenue from sales of extended warranty service plans is recognized either at the point of sale or over the warranty period, depending on the determination of legal obligor status. Costs are recognized in the same period as the related revenue.

2. Year End Date/Growth Rates – Fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. (December 26, 2009). The revenue growth rate for 2009 was -16.22%. This is representative of a steady decline in the revenue growth rates over the past 4 years (see spreadsheet for exact numbers).

3. Relevant Margins – see spreadsheet

4. Which, if any, operating expenses are growing faster than revenues? Is this a concern? It appears that there is a one-time Goodwill and trade name impairments expense in 2008. This may, or may not be, cause for concern. Without reading the footnotes (per this assignments instructions), it is difficult to determine the cause of this and make a judgment regarding whether this is cause for concern. While operating expenses are declining, the decline in revenues relative to the decline in expenses may be cause for concern.

5. Performance Analysis – The overall outlook for Office Depot is in line with Office Max. The Gross Margin % has remained relatively constant. The sharp decline in the revenue growth rate is quite certainly a result of the economic downturn that began in the beginning of 2007. The operating profit margin is on the rise indicating that the return on each dollar of sales revenue lost is decreasing. Again, the decline in the margins is most certainly a result of the poor economy. The net profit margin and the income from continuing operations percentages are close as the...