Brown Shoes Company Inc. Melvin K. Thomas

ACG2021 SECTION 008

Executive Summary

After evaluating the financial statements of Brown Shoe Company I would conclude

the company has a solid background, this past year the company did not do as well as but their seems to be promise for this coming fiscal year as the company has

acquired a competing firm.

Link to Annual Report:

http://library.corporate-ir.net/library/10/101/101899/items/146770/10k2005.pdf

Part A. IntroductionRonald A. Fromm

Chairman of the Board, Chief Executive Officer

Home office:

Brown Shoe Company, Inc.8300 Maryland Avenue

St. Louis, Missouri 63105-3693

The 2006 fiscal year begins on Sunday January 29, 2006, and ends on Saturday, February 3, 2007.

• Brown Shoes is the leading consumer-driven footwear company, operating nearly 1,300 retail shoe stores.

• The main geographic area of activity is the U.S. and Canada.

Part A. Audit Report

Audit Committee Members:Jerry E. Ritter, W. Patrick McGinnis

Steven W. Korn, Hal J. UpbinIndependent Accounting Firm:

Ernst & Young LLPThe Firm concluded that Brown Shoe Company Inc. did not maintain effective

internal control over financial reporting.

Part A. Stock Market Information

• Most recent price of the company’s stock: $44.54

• Twelve month trading range of the company’s stock:

52 Week High$45.4652 - Week Low$29.64

• Dividend: $0.10 per share

• Date of the above information: 02/10/06 4:03 p.m. ET

• Your opinion about the company stock as an investment? HOLD

Part B. Industry Situation and Company Plans

Although Brown Shoe Company has had a rocky year, the small set back of this fiscal year will help Brown propel itself this coming year. The proof of this will

is laid out in the companies Investor book. The company has bought out an smaller competitor to gain a better stance in the market. This year the company

will also launch a more aggressive marketing campaign. This will help differentiate the company from competitors like Nine West. Also the new

licensing and brand agreement will help create more identity for the company.

More information can be found in the Investor Handbook Online:

http://media.corporate-ir.net/media_files/nys/bws/presentations/1-2006-BWS-Investor-

Book.pdf

Part C. Income Statement•The Income Statement is in single step format.

•In the past two years the company seems to have increased their net sales about $100,000 as indicated from the net sales chart.

The following chart is estimated in billions.

00.20.40.60.8

11.21.41.61.8

2

2000 2001 2002 2003 2004

Net Sales

Part C. Balance Sheet

•Overall there was a large increase in total assets of about $108,000 the larger of the element to contribute to this increase is liabilities.

Yr. Assets Liabilities Stockholders

04 $846,134 454,831 391,303

03 $739,054 388,974 350,080

Part C. Statement of Cash Flows

•Cash flows from operations is more than net income for the last two years.

•The company’s growth through investing activities shows an increase in capital expenditures.

•What is the company’s primary source of financing is in current maturities of long term debt.

•Overall, cash has increased over the past two years.

Part D. Accounting PoliciesCritical Accounting PoliciesInventories are the most significant asset as ti represents 50% of total assets in 2004. They are using LIFO method.

Income Taxes for the effects of timing differences between financial and tax reporting.

Leasing Accounting, there are two forms being used Construction Allowances Received from landlords and Straight-Line Rents and Rent Holiday.

Store Closing and Impairment Charges, Litigation and Tax Contingences, and Environmental Matters.

Part E. Financial AnalysisLiquidity Ratios

Liquidity Ratios 2004 2003 Comment

Working Capital $281,324 $292,378 There was a decrease in Working Capital

Current Ratio 1.82 2.24 A major decrease in Current Ratio

Receivable turnover 19.9 22.3 A smaller turnover rate

Avg. days’ sales 18.3 16.3 A larger turnover time frame

Inventory turnover 2.7 2.8 A small decrease in Inventory turnover

Avg. days’ inventory 135.1 130.3 A larger turnover time frame

Part E. Financial AnalysisProfitability Ratios

Profitability Ratios

2004 2003 Comment

Profit Margin 2.2% 2.5% There was a decrease in Profit margin

Asset Turnover 2.4 2.3 A small increase in asset turnover

Return of assets 5.5% 5.8% A decrease in ROA

Return on equity 11.7% 12.5% A decrease in ROE

Part E. Financial AnalysisSolvency Ratio

For the past two years, calculate and comment on:

• Debt to equity ratio 2004: 29%

• Debt to equity ratio 2003: 44%

The decrease in ratio show a bit more stability and shows the company is paying off some of the

debts it owns.

Part E. Financial AnalysisMarket Strength Ratios

Market Strength Ratios

2004 2003 Comment

Price earning per share

19.37 17.90 The value of the stock is increasing

Dividend yield 8% 8% The Stock has a very predictable dividend pay out. It’s a consistent stock.