Comparing Income Statements and Balance Sheets of Competitors

Comparing Income Statements and Balance Sheets of Competitors Following are selected income statement and balance sheet data from two

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.

 

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