Gop is a close competitor of Deckers Outdoor and Wolverine in the teenage oppare

Question

Gop is a close competitor of Deckers Outdoor and Wolverine in the teenage opparel industry. Gap also owns the Old Navy andl Banano Republic clothing chains. Gap reported higher earnings than Deckers Outdloor onc Wolverine in 2012. Does that meon Gap is more proftable? Maybe, but we need to control for differences in company size to occurately compare across companies. Selected financial data for The Gap is provided os follows in millions) Sales 2012 2011 $15,049 Net income 927 Total assets 9,767 7,885 Total liabaities Stockholders' equity S5,167 3.485 4,600 4400 Total liabilities and stockholders equity S9,767 7,885 Shares outstoncling (in millions) Stock price 640 s 24 Required: 1. Calculate the return on equity for Gap in 2012. (Enter your answers in millions, not in dollars.) in Return on Eq Gap 2. Calculate the return on the market value of equity for Gap in 2012. (Enter your answers in millions, not in dollars.) S in Return on the Market Value of E Gap

Explanation / Answer

Return on equity = Net income / Shareholders fund

= 927/4600

= $0.201

Return on Market value = Market Value / shareholders equity

= 15360/4600

= $ 3.339

where ,Market value = 24*640 = $15360

  

Price earning Ratio = market price/earning per share

= 24/.201

= $119.4

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