Comparing Income Statements and Balance Sheets of Competitors
Following are selected income statement and balance sheet data from two retailers: Abercrombie & Fitch (clothing retailer in the high-end market) and TJX Companies (clothing retailer in the value-priced market).
(a) Express each income statement amount as a percentage of sales.
Round your answers to one decimal place (ex: 0.2345 = 23.5%).
(b) Express each balance sheet amount as a percentage of total assets.
Round your answers to one decimal place (ex: 0.2345 = 23.5%).
Which of the following statements about business models is most consistent with the computations for part (a)?
ANF’s expenses as a percentage of sales are higher because it spends more on advertising than does TJX.
ANF is a high-end retailer that is able to charge high prices for its products, but bears substantial operating costs to support its “shopping experience.”
ANF’s profit is higher than TJX’s as a percentage of sales because its sales are higher than TJX’s.
ANF’s gross profit is higher than TJX’s because its sales volume allows it to manufacture clothes at a lower per unit cost than can TJX.
Which of the following statements about business models is most consistent with the computations for part (b)?
ANF reports lower current assets as a percentage of total assets because it pays its vendors on a more timely basis than does TJX.
ANF reports higher long-term assets as a percentage of total assets because it depreciates its long-term assets more slowly than does TJX.
ANF reports lower current assets and higher long-term assets as a percentage of total assets because it carries less inventory and has a greater capital investment in its stores than does TJX.
ANF reports lower current assets as a percentage of total assets because it is a smaller company and cannot afford the investment in inventory.
(c) Which company has a lower proportion of debt? What do the ratios tell us about relative riskiness of the two companies?
ANF has a lower proportion of debt than does TJX, which implies that ANF is less risky than TJX.
TJX has a lower proportion of debt than does ANF, which implies that TJX is less risky than ANF.
ANF has a higher proportion of debt than does TJX, which implies that ANF is less risky than TJX.
TJX has a higher proportion of debt than does ANF, which implies that TJX is less risky than ANF.