The Gap, Inc. (GAP)

Short-term

Turnover ratios

The activity ratios of The Gap, Inc. provide insight into how efficiently the company is managing its inventory, receivables, payables, and working capital.

1. Inventory turnover:
- The inventory turnover ratio has been fluctuating over the past five years, ranging from a low of 3.32 to a high of 4.75.
- The increase in the inventory turnover ratio from 3.32 in Jan 29, 2022, to 4.57 in Feb 3, 2024, indicates that The Gap, Inc. has been more effective in selling through its inventory during the most recent period.

2. Receivables turnover:
- The receivables turnover ratio has been relatively stable, with values ranging from 38.02 to 51.84 over the five-year period.
- The high receivables turnover ratio suggests that The Gap, Inc. efficiently collects its outstanding receivables from customers, with an increasing trend observed from 38.02 in Jan 30, 2021, to 51.52 in Feb 3, 2024.

3. Payables turnover:
- The payables turnover ratio has also shown variability, ranging from 5.14 to 8.73.
- A decrease in the payables turnover ratio indicates that The Gap, Inc. is taking more time to pay its suppliers, with a decrease from 8.73 in Feb 1, 2020, to 6.76 in Feb 3, 2024.

4. Working capital turnover:
- The working capital turnover ratio has fluctuated significantly over the five years, with values ranging from 6.50 to 15.32.
- The increase in the working capital turnover ratio from 6.50 in Jan 30, 2021, to 11.46 in Feb 3, 2024, suggests that The Gap, Inc. has been more efficient in generating revenue from its working capital.

Overall, these activity ratios reflect The Gap, Inc.'s ability to manage its resources efficiently and effectively, enhancing its operational performance and financial health over time.

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Average number of days

Activity ratios provide insights into how efficiently a company manages its assets and liabilities. Let's analyze The Gap, Inc.'s activity ratios over the past five years:

1. Days of Inventory on Hand (DOH):
- The trend in DOH shows a slight increase from 76.77 days in 2020 to 79.90 days in 2024.
- A higher number of days indicates that inventory is sitting in the warehouse for a longer time before being sold, potentially tying up capital and increasing storage costs.
- The increase in DOH may suggest that The Gap, Inc. has been holding onto its inventory for a longer period in recent years.

2. Days of Sales Outstanding (DSO):
- The DSO measures the average number of days it takes for the company to collect revenue after making a sale.
- The trend in DSO shows a slight fluctuation but generally remains stable over the years, ranging from 7.04 days in 2020 to 7.08 days in 2024.
- A lower DSO indicates that the company is efficient in collecting payments from customers, improving cash flow.

3. Number of Days of Payables:
- This ratio reflects the average number of days it takes for The Gap, Inc. to pay its suppliers.
- The trend in the number of days of payables shows variability, with fluctuations over the years from 41.81 days in 2020 to 54.03 days in 2024.
- An increase in the number of days of payables could suggest that the company is taking longer to settle its debts with suppliers, potentially improving cash flow but affecting relationships with suppliers.

In conclusion, while The Gap, Inc. has shown some fluctuations in its activity ratios over the years, it is essential for the company to closely monitor and manage its inventory levels, receivables collection, and payables turnover to maintain operational efficiency and financial health.

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Long-term

The Fixed Asset Turnover ratio measures how efficiently a company is utilizing its fixed assets to generate sales. A higher ratio indicates better efficiency. In the case of The Gap, Inc., the Fixed Asset Turnover ratio has been relatively stable over the past five years, ranging from 4.86 to 5.81. This suggests that the company has been consistently effective in generating sales from its fixed assets.

On the other hand, the Total Asset Turnover ratio reflects the company's ability to generate sales from all its assets, including both fixed and current assets. The Gap, Inc. has shown an increasing trend in its Total Asset Turnover ratio over the years, from 1.00 in 2021 to 1.37 in 2023. This indicates that the company has been improving its overall efficiency in utilizing all of its assets to generate sales.

Overall, The Gap, Inc. has demonstrated strong efficiency in utilizing both its fixed and total assets to drive sales, as evidenced by its consistent performance in the Fixed Asset Turnover ratio and the improving trend in the Total Asset Turnover ratio. These ratios suggest that the company is effectively managing its assets to generate revenue and maintain competitiveness in the retail industry.