Long-Term Liabilities and Equity Analysis- Study of American Eagle Outfitters Companies

Long-Term Liabilities and Equity Analysis- Study of American Eagle Outfitters Companies

Liabilities and Equity

Established in 1977, American Eagle Outfitters (AEO) is a worldwide firm based in the United States. The business, often known as American Eagle, is well-known for its apparel labels. In 2006, American Eagle was listed on the New York Exchange. Among its most well-known offerings is Aerie, which provides young ladies a friendly and secure environment where they can buy form-fitting clothing, including bras and underwear. At present, American Eagle Outfitters Inc. has over a thousand locations in the US, Canada, Mexico, and Hong Kong. For this part of the project, the company’s liabilities are evaluated. The liabilities and equity will be compared with those of industry peers by considering those of Buckle Inc. The evaluation will look at the significant liabilities of each company and assess whether they are short-term or long-term in nature. Further, the analysis will consider the types that companies rely upon significantly and finish by paying attention to the equity structure of each company.

Significant Liabilities of Each Company

American Eagle Outfitters Inc.

American Eagle Outfitters Inc.’s liabilities are accounts payable, accrued taxes and income, operating lease liabilities, accrued expenses, accrued compensation, unredeemed gift certificates and gift cards, and other non-current liabilities. When the liabilities are split into current and long-term liabilities, the larger portion of the company’s liabilities comprises long-term ones. For the fiscal year ending in February 2020, the long-term liabilities comprised of non-current operating lease liabilities and other non-current liabilities totaled $1,329,070,000. On the other hand, current liabilities totaled $751,756,000, which is composed of accounts payable, the current portion of operating lease liabilities, accrued expenses, unredeemed gift certificates and gift cards, accrued compensation, and income taxes. Considering the two types of liabilities, it is justifiable to say that the company relies significantly on long-term liabilities to further its operations. The long-term liabilities are majorly related to operating leases for its stores in various parts of the world. However, this does not mean that current liabilities are not crucial when considering the company’s performance because they bear a significant portion of the liabilities. When expressed as a percentage, current liabilities compose 36.13% of the total liabilities, while the remaining 63.87% relates to long-term liabilities.

Buckle Inc.

When the industry peer is considered, a perspective on industry performance can be acquired. Buckle Inc. liabilities are accounts payable, accrued employee compensation, store operating expenses, gift certificates redeemable, current part of operating lease liabilities, and income taxes payable. On the long-term liabilities front, the company has deferred rent, non-current operating lease liability, and deferred compensation. The company’s total liabilities for the fiscal period ending in February 2020 totalled $172,641,000. Notably, this figure was composed of the mentioned current liabilities.

On the other hand, the company’s long-term liabilities were $478,742,000 in total. Expressed as a percentage, the current liabilities for the company make up 26.5% of the total liabilities, while long-term liabilities make up 73.5% of the entire company’s liabilities. Notably, this aligns well with the structure of liabilities of American Eagle Outfitters Inc. Therefore, businesses operating in this industry will find long-term liabilities to be significant for their operations. The larger portion of this liability is associated with operating lease liabilities. A company anticipating entering this industry should plan to cope with significant non-current operating leases as the major component of liabilities. However, this should not downplay the place of other liabilities in the company’s liability structure.

Types of Financing Relied Upon

American Eagle Outfitters Inc. relies on various financing options. The primary financing option for the company is stock capital, which is issued to the public. Based on the financial statements reported in February 2020, the company has a common stock of $577,856,000 (American Eagle Outfitters, Inc., 2020). Notably, this amount comprises issued and outstanding shares, which indicates that the company still seeks financing from this mechanism. However, the financial statements indicate that American Eagle Outfitters Inc. was significantly financed by retained earnings in the fiscal year that ended in February 2020. The reported earnings for that period were $2,108,292,000, a significant financing option for the company. Essentially, organizations use retained earnings to finance their operations because the cost of retained earnings’ capital is almost equal to zero. It is the cheapest funding source, which explains why the company significantly relied on the option to finance its operations. The last financing option the company depends upon is leases reported under the long-term liabilities. Interestingly, the company does not have long-term loans to finance its activities, indicating good financial health.

Buckle Inc., on the other hand, financed its operations through the issuance of stock and retained earnings. Notably, this connotes a similarity to the financing criteria adopted by American Eagle Outfitters Inc. Essentially; this offers insight into the suitable financing options for companies operating in the clothing and apparel industry. For the fiscal period that ended in February 2020, Buckle Inc. was financed by a common stock of $152,258,000. Further, the company was funded by retained earnings of $236,398,000. Notably, the financing option of controlled earnings calls for a company to make profits before achieving significant retained earnings that can be used to finance the company’s operations.

The two companies under consideration have been able to achieve this, indicating their stellar performance in the industry. Further, retained earnings financing options are a cushion for the company when profits are not attained. For instance, American Eagle Outfitters Inc. reported a loss of $33,168,000 in the fiscal period that ended in 2020. However, this was covered by the retained earnings, which the company must ensure that stockholders’ trust in the company is not lost. When the notes to the financial statements are considered, Buckle Inc. reported a financing arrangement with Wells Fargo Bank, from which it acquired unsecured credit to finance its operations. Notably, this line of credit arrangement allows the company to borrow credit that offers interest that should be paid at an interest rate based on LIBOR (The Buckle, Inc., 2020). However, it is worth noting that the company has not utilized this facility as of February 2020. There is no such arrangement in the case of American Eagle Outfitters Inc.

Equity Structure of Each Company

The equity structure refers to the components that make up the equity capital of an organization. Those components that make up American Eagle Outfitters Inc.’s equity are considered for this matter. For the fiscal period that ended in February 2020, the company’s total shareholders’ reported equity was $1,247,853. Notably, this amount comprised preferred stock, common stock, retained earnings, and treasury stock. The company notes that these items are at cost. It is worth noting that these components that form the stockholder’s equity structure include things that reduce the total reported amount. The items that reduce the aggregate reported amount for shareholders’ equity entail accumulated comprehensive loss and treasury stock. Thus, the main components of the company’s equity structure are common stock, preferred stock, and retained earnings.

When the equity structure of Buckle Inc. is considered, a trend similar to that of American Eagle Outfitters Inc. is observed. The company’s equity structure significantly comprises retained earnings and common stock. The company has authorized 100,000,000 shares of $0.01 par value for the common stock. Of these amounts, $49,205,681 were issued and outstanding as of February 2020. However, additional paid-in capital was a different component of the equity structure that was not contained in the form of American Eagle Outfitter Inc. Notably; this difference arose from Buckle Inc. issuing new stock to the public and selling part of common stock standing unissued before that period. According to the company’s balance sheet, as reported in February 2020, the company’s total shareholder equity was $389,148,000.

Conclusion

The information discussed above covers significant aspects relating to the liabilities and equity of American Eagle Outfitters Inc. and its industry peer, Buckle Inc. From the analysis, the companies are similar regarding the nature and type of liabilities they have. The most significant liability identified from the company’s financial statements as of February 2020 was long-term operating lease liability. The primary financing option adopted by the two companies is issuing common stock and using retained earnings to fund their operations. However, a borrowing arrangement has been identified in the case of Buckle Inc. that could be used to source funds for a financing need. Overall, the company offers insight into a firm’s equity structures, including common stock and retained earnings.

References

American Eagle Outfitters, Inc. (2020). Annual report. https://www.sec.gov/Archives/edgar/data/919012/000156459020010469/aeo-10k_20200201.htm

The Buckle, Inc. (2020). Annual report. https://www.sec.gov/Archives/edgar/data/885245/000088524520000011/bke20200201-

ORDER A PLAGIARISM-FREE PAPER HERE

We’ll write everything from scratch

Assignment Details

This IP builds upon your work in Units 1, 2, and 3.

You will continue your industry research by evaluating long-term liabilities and equity using industry examples. Using the financial statements (located in Appendix A: American Eagle Outfitters, Inc., 2020 Annual Report of the required textbook: Financial Accounting), review and compare the liabilities and equity of each company. Consider the following questions:

Long-Term Liabilities and Equity Analysis- Study of American Eagle Outfitters Companies

What are each company’s significant liabilities? Are they current or long-term?
What types of financing does each company rely on?
What is the equity structure of each company?
Deliverable Requirements: Your Long-Term Liabilities and Equity section should have at least 5 pages (the title and reference pages are not counted in these 5 pages) as well as follow the requirements below for using the APA style.

Address the questions above and consider their implications for American Eagle Outfitters, Inc.
Do not forget to review the notes to the financial statements for additional information about the company’s liabilities and equity structure.
Submitting your assignment in APA format means that you will need the following at a minimum:

Title page: Remember the running head. The title should be in all capitals.
Length: There should be at least 5 pages.
Body: This begins on the page following the title and abstract pages and must be double-spaced (be careful not to triple- or quadruple-space between paragraphs). The typeface should be 12-point Times New Roman or 12-point Courier in regular black type. Do not use color, bold type, or italics except as required for APA-level headings and references. The deliverable length of the body of your paper for this assignment is 5 pages. In-body academic citations to support your decisions and analysis are required. Using a variety of academic sources is encouraged.
Reference page: References that align with your in-body academic sources are listed on the final page of your paper. The references must be in APA format and use appropriate spacing, hanging indentation, italics, and uppercase and lowercase for the type of resource used. Remember that the reference page is not a bibliography but a further listing of the abbreviated in-body citations used in the paper. Every referenced item must have a corresponding in-body citation.