Comparing income statements and balance sheets of competitors: Following are sel

Question

Comparing income statements and balance sheets of competitors: Following are selected income statement and balance sheet data from two retailers: Abercrombie and Fitch and TJX company. for the fiscal year ended February 2, 2013.

$    1,907.00

a. expresseach income statement amount as a percentage of sales. comment on any differences observed between these two companies, esppecially as they relate to their respective business models.

b. express each balance sheet amount as apercentage of total assets. comment on any differences observed between these companies, especially as they relate to ther respective business models.

c. Which company has a higher proportion of stockholders equity (and a lower proportion of debt)? What do the ratios tell us about relative riskiness of the two companies?

Income Statement ($ millions) ANF TJX Sales $ 4,511.00 $ 25,878.00 COGS $ 1,694.00 $ 18,521.00 Gross Profit $ 2,817.00 $    7,357.00 Total Expenses $ 2,580.00 $    5,450.00 Net Income $     237.00

$    1,907.00

Explanation / Answer

a)Net Income as a percentage of sales:

ANF = $237/$4,551 = 0.0520 or 5.20%
TJX = $1,907/$25,878 = 0.0737 or 7.37%

As this ratio is higher for TJX, its performance is better compared to ANF as every $1 of sales is generating $0.073 in profit.

b)Current assets to total assets:

ANF = $1,308/$2,987 =0.4379 or 43.79%
TJX = $5,712/$9,512 = 0.6005 or 60.05%

TJX has employed higher level of current assets in the capital.

Long term assets to total assets:

ANX = 1,679/$2,987 = 0.5621 or 56.21%
TJX = $3,761/$9,512 = 0.3954 or 39.54%

TJX has employed lesser long term assets in the capital.

c)Stockholders equity to total capital:

ANX = $1,818/$2,987 = 0.6086 or 60.86%
TJX = $3,666/$9,512 = 0.3854 or 38.54%

As TJX has lesser stockholder’s proportion in the capital, its level of leverage is higher compared to ANX. Though this higher level of leverage earns more profit for the company, it makes TJX riskier as well compared to ANX and TJX is more likely to default on its liabilities than ANX.

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