During the current year, the Jordan family trust, an inter vivos trust, has business income of $220,000. Of this amount, $50,000 is retained in the trust with a joint election….
Why would the liabilities structure of each company not be appropriate for the other company?
Description and questions Tiffany & Co. and Blue Nile Inc. are jewelry retailers. While their products are similar, their business models differ. Tiffany & Co. sells its products primarily in high-end luxury stores. Blue Nile Inc. sells its products online only. Moreover, the two companies finance their businesses differently. Specifically, the companies use different amounts of accounts payable, merchandise credits and deferred revenue, debt, and leases. The objective for this paper is to explain how the companies' use of liabilities parallels and complements their business strategies. Access Tiffany & Co.'s and Blue Nile Inc.'s 10-K's for 2011, 2013, and 2015 from Blackboard in the folder /Course Documents/SEC filings. You may use additional sources of information if you like. First, describe the companies and how the companies use liabilities to finance their businesses. Address the following points: • Based on Item 1 of the 10-K's, briefly describe and compare what assets each company needs to maintain in order to reach its customers. For example, to operate high-end luxury stores, what kinds of inventory must Tiffany & Co. maintain? In contrast, to operate its online store, what kinds of inventory must Blue Nile Inc. maintain? What about cash, accounts receivable, property, plant and equipment, etc.? • Compare the companies' financial statements. o Since the companies are different sizes, for each company, tabulate the consolidated balance sheet and income statement as a percent of total assets each year from fiscal 2010 to fiscal 2015. Also tabulate gross margin (gross profit as a percent of revenue) each year. o Which balance sheet items are relatively large for Blue Nile Inc. and which balance sheet items are relatively large for Tiffany & Co.? o Compare the gross margins, asset turnover (revenue as a percent of total assets), and shareholders' equity as a percent of total assets across the two companies. • Compare how the companies use liabilities. Use the footnotes to the financial statements, as well as any relevant information from Items 1, 1a, and 7. o Describe the companies' relationships with suppliers, as well as any notable terms or conditions on the firms' accounts payable. o Describe anything notable about the companies' deferred revenue. o Compare the principal amounts (as a percent of total assets) and maturities on their debt. Describe any notable contract terms. o Compare the amounts (as a percent of total assets) and lengths of their lease and deferred rent obligations. Describe any notable contract terms. After compiling and presenting these data, explain the “fit.” • How does Blue Nile Inc.'s liabilities structure fit and complement its marketing and business strategy? • How does Tiffany & Co.'s liabilities structure fit and complement its marketing and business strategy? • Why would the liabilities structure of each company not be appropriate for the other company? • Note: Do not evaluate Blue Nile Inc.'s and Tiffany & Co.'s marketing and business strategies. Take those strategies as given. Rather, focus on how their liabilities structures fit and complement the marketing and business strategie