GURUFOCUS.COM » STOCK LIST » Consumer Cyclical » Retail - Cyclical » Gap Inc (NYSE:GAP) » Definitions » Earnings Power Value (EPV)

Gap (GAP) Earnings Power Value (EPV) : $-16.55 (As of Jan25)


View and export this data going back to 1976. Start your Free Trial

What is Gap Earnings Power Value (EPV)?

As of Jan25, Gap's earnings power value is $-16.55. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is N/A.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


Gap Earnings Power Value (EPV) Historical Data

The historical data trend for Gap's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Gap Earnings Power Value (EPV) Chart

Gap Annual Data
Trend Jan16 Jan17 Jan18 Jan19 Jan20 Jan21 Jan22 Jan23 Jan24 Jan25
Earnings Power Value (EPV)
Get a 7-Day Free Trial Premium Member Only Premium Member Only -17.32 -20.63 -26.47 -24.43 -16.55

Gap Quarterly Data
Apr20 Jul20 Oct20 Jan21 Apr21 Jul21 Oct21 Jan22 Apr22 Jul22 Oct22 Jan23 Apr23 Jul23 Oct23 Jan24 Apr24 Jul24 Oct24 Jan25
Earnings Power Value (EPV) Get a 7-Day Free Trial Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -24.43 -23.15 -21.43 -20.05 -16.55

Competitive Comparison of Gap's Earnings Power Value (EPV)

For the Apparel Retail subindustry, Gap's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


Gap's Earnings Power Value (EPV) Distribution in the Retail - Cyclical Industry

For the Retail - Cyclical industry and Consumer Cyclical sector, Gap's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where Gap's Earnings Power Value (EPV) falls into.



Gap Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

Gap's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 15,212
DDA 515
Operating Margin % 0.58
SGA * 25% 0
Tax Rate % 14.09
Maintenance Capex 424
Cash and Cash Equivalents 2,588
Short-Term Debt 632
Long-Term Debt 4,843
Shares Outstanding (Diluted) 384

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 0.58%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = $15,212 Mil, Average Operating Margin = 0.58%, Average Adjusted SGA = 0,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 15,212 * 0.58% +0 = $88.382882 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 14.09%, and "Normalized" EBIT = $88.382882 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 88.382882 * ( 1 - 14.09% ) = $75.92664052533 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 515 * 0.5 * 14.09% = $36.2625755 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 75.92664052533 + 36.2625755 = $112.18921602533 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
Gap's Average Maintenance CAPEX = $424 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. Gap's current cash and cash equivalent = $2,588 Mil.
Gap's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 4,843 + 632 = $5475 Mil.
Gap's current Shares Outstanding (Diluted Average) = 384 Mil.

Gap's Earnings Power Value (EPV) for Jan25 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 112.18921602533 - 424)/ 9%+2,588-5475 )/384
=-16.55

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( -16.550187615008-20.13 )/-16.550187615008
= N/A

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


Gap  (NYSE:GAP) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


Gap Earnings Power Value (EPV) Related Terms

Thank you for viewing the detailed overview of Gap's Earnings Power Value (EPV) provided by GuruFocus.com. Please click on the following links to see related term pages.


Gap Business Description

Traded in Other Exchanges
Address
Two Folsom Street, San Francisco, CA, USA, 94105
Gap retails apparel, accessories, and personal-care products under the Gap, Old Navy, Banana Republic, and Athleta brands. Old Navy generates more than half of Gap's sales. The firm also operates e-commerce sites, outlet stores, and specialty stores under various Gap names. Gap operates approximately 2,500 stores in North America, Europe, and Asia and franchises about 1,000 more in Asia, Europe, Latin America, and other regions. Gap was founded in 1969 and is based in San Francisco.
Executives
John J Fisher director, 10 percent owner C/O PISCES INC, 1300 EVANS AVENUE, NO. 880154, SAN FRANCISCO CA 94188
William Sydney Fisher director, 10 percent owner C/O PISCES INC, 1300 EVANS AVENUE, NO. 880154, SAN FRANCISCO CA 94188
Chris Blakeslee officer: President & CEO, Athleta 2 FOLSOM STREET, SAN FRANCISCO CA 94105
Robert J Fisher director C/O PISCES INC, 1300 EVANS AVENUE, NO. 880154, SAN FRANCISCO CA 94188
Katrina O'connell officer: EVP CFO 2 FOLSOM STREET, SAN FRANCISCO CA 94105
Horacio Barbeito officer: President & CEO, Old Navy 2 FOLSOM STREET, SAN FRANCISCO CA 94105
Sarah Gilligan officer: EVP Sup Chn, Strat & Transform 11305 FOUR POINTS DRIVE, BUILDING II, SUITE 100, AUSTIN TX 78726
Mark Breitbard officer: Pres. & CEO, Banana Republic 2 FOLSOM STREET, SAN FRANCISCO CA 94105
Tracy Gardner director C/O DELIA*S, INC., 50 WEST 23RD STREET, 10TH FLOOR, NEW YORK NY 10010
Julie Gruber officer: EVP & Global General Counsel 2 FOLSOM STREET, SAN FRANCISCO CA 94105
Tariq M Shaukat director ONE CAESARS PALACE DRIVE, LAS VEGAS NV 89109
Gurmeet Singh officer: Chief Digital & Tech Officer 2 FOLSOM ST, SAN FRANCISCO CA 94105
Richard Dickson director C/O MATTEL, INC., 333 CONTINENTAL BOULEVARD, EL SEGUNDO CA 90245
Mary Beth Laughton officer: President & CEO, Athleta 2 FOLSOM STREET, SAN FRANCISCO CA 94105
Kathryn A. Hall director ONE MARITIME PLAZA, SIXTH FLOOR, SAN FRANCISCO CA 94111