Q1. As of the date of the case (assume = Jan. 27, 2004):

a) What is Great Atlantic & Pacific Tea’s (A&P’s) ‘business model’?

A&P is a retail food chain in North America that operates under various trade names (i.e. Super Foodmart, Farmer Jack, Dominion, etc.). The business focuses on sales volume, inventory turnover and effective cost control as the products are sold at low margins in a very competitive market.

A&P’s business model focuses primarily on acquisitions and divestitures. As the company has room for growth, it expands by building or acquiring more stores. Once the company is in need of extra cash, it divests assets to include store closings and complete sales of a trade name.

b) Which …show more content…

Additionally, A&P has started cutting capital expenditures which is a red flag that the company is facing financial difficulties. This is a red flag because it signifies A&P is not investing in its own business and in the long term A&P will start losing market share to other competitors.

Lastly, A&P relied heavily on the favorable Canadian exchange rate to positively impact sales by increasing revenue by $210 million for the year. This is also not a long term solution as this is an uncontrollable external influence and can reverse in following years to negatively impact sales.

Q5. What is A&P’s recovery plan? Structure your answer carefully but concisely. (3 pts)

A&P’s recovery plan is to divest assets in order to generate cash for current expenses. Once expenses are paid, A&P is continuing to open some stores on an annual basis, but not sufficiently growing to attain necessary revenue levels.

It seems that A&P’s strategy is to manage earnings to show a decrease in net loss throughout the quarters. First, A&P is using FIFO to account for inventory instead of LIFO. This decreases the COGS which increases both net income and retained earnings. Additionally, this decreases the debt to equity ratio while increasing the inventory turnover ratio. Second, A&P has been deducting the allowance for COGS which misrepresents the gross profit and allows A&P to realize a greater