Analysis of Operating Activities: Dick's Sporting Goods, Inc.

Dick’s has three sources of revenue: hardlines, apparel and footwear. These sources accounted for 57%, 26% and 17% of total revenue in 2006, respectively. These figures showed relatively no change from 2005 numbers. Revenue is recognized from the point of sale, net of sales tax. A provision for anticipated returns is provided through a reduction in sales and cost of sales. Cost of goods sold includes the cost of merchandise, inventory shrinkage, freight, distribution and store occupancy costs. Selling, general and administrative expenses include payroll, advertising, information systems, legal, etc. There were no major changes in these expense accounts as they remained at 71% and 28% of sales, respectively.

The Company’s net sales increased 19% from 2005 to 2006 while accounts receivable remained at 2% of total assets. The accounts receivable turnover ratio weakened during 2006, falling to 78.47 from 89.39 the previous year. Though the Company is collecting at a slower rate, its turnover ratio still remains well above industry average.

Inventories improved to 42% of total assets from 45% the previous year. The Company’s inventories are stated at the lower of weighted average cost or market. Inventories are net of shrinkage and obsolescence and costs consist of the direct cost of merchandise including freight. Inventory turnover weakened to 4.85 during 2006 from 4.90 the previous year.

The Company is a specialty retailer which offers both premium and private brand label. The margins improved to 28.79% and 6.35% from 28.10% and 5.06% during 2005. The company improved its return on assets and net profit margin to 7.39% and 3.62%, respectively from 6.14% and 2.14% the previous year. Return on assets weakened to 2.04 from 2.21 the previous year. The Company is centered between a product differentiation strategy and a cost leadership strategy.

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Income statement vertical analysis

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Balance sheet vertical analysis

Balance sheet horizontal analysis

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