For this case, please refer to Appendix 1 for additional financial data for thes

Question

For this case, please refer to Appendix 1 for additional financial data for these three companies.
1. Abercrombie & Fitch Co.
(52-week fiscal year ended January 29, 2011; 52-week fiscal year ended January 30, 2010)
"Abercrombie & Fitch Co (“A&F”), a company incorporated in Delaware in 1996, through its subsidiaries (collectively, A&F and its subsidiaries are referred to as “Abercrombie & Fitch” or the “Company”), is a specialty retailer that operates stores and directto-consumer operations."
Source:Abercrombie &Fitch 2010 10-K
2. Limited Brands, Inc.
(52-week fiscal year ended January 29, 2011; 52-week fiscal year ended January 30, 2010)
"We operate in the highly competitive specialty retail business. Founded in 1963 in Columbus, Ohio, we have evolved from an apparel-based specialty retailer to an approximately $10 billion segment leader focused on women’s intimate and other apparel, beauty and personal care product categories that make customers feel sexy, sophisticated and forever young"
Source: Limited Brands 2010 10-K
3. Gap, Inc.
(52-week fiscal year ended January 29, 2011; 52-week fiscal year ended January 30, 2010)
"The Gap, Inc. (the “Company”, “we”, and “our”) was incorporated in the State of California in July 1969 and was reincorporated under the laws of the State of Delaware in May 1988. We are a global specialty retailer offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands."
Source: Gap Inc 2010 10-K
Required
a. For each of the three companies, calculate the following ratios for the year 2010 and 2011: (note : assume the year’s data as given is the average)
(i) current ratio
(ii) acid test ratio
(iii) net profit margin
(iv) accounts receivable turnover
(v) accounts receivable turnover in days
(vi) inventory turnover
(vii) inventory turnover in days
(viii) return on assets
(ix) total asset turnover
(x) return on investment
(xi) return on total equity
(xii) degree of financial leverage
(xiii) diluted earnings per share
(xiv) price/earnings ratio (market price AF 2011 $78.25, 2010 $48.36; LB 2011 $40.35, 2010 $28.92; Gap 2011 $25.71, 2010 $19.20)
(xv) percentage of earnings retained
(xvi) dividend payout
(xvii) dividend yield
(xviii) book value per share
(xix) market price per share

b. Comment on each of the ratios in (a) for all three companies with respect to its liquidity, leverage, profitability and cash flow. [ marks]

c. How would you rank these companies in terms of liquidity, leverage, profitability and cash flow? [ marks]
d. Comment on the cash flow items in the Cash Flow Statement with respect to (i) operating activities; (ii) investing activities; (iii) financing activities. [ marks]
e. What are the possible explanations for A&F, Limited Brands and GAP to purchase a number of shares of their common stock? [ marks]
f. For Limited Brands, there was a payment of $4.60 of dividends per share in 2011 but the dividends paid out in 2011 ($1,144m) is lower than that paid out in 2010 ($1,488m). What is the explanation for this drop in the total dividends paid out?

APPENDIX ABERCROMBIE & FITCH CO. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Thousands, except share and per share amounts) Net Sales Cost of Goods Sold GROSS PROFIT Stores and Distribution Expense Marketing, General and Administrative Expense Other Operating Expense (Income), Net OPERATING INCOME Interest Expense (Income), Net INCOME FROM CONTINUING OPERATIONS BEFORE TAXES Tax Expense from Continuing Operations NET INCOME FROM CONTINUING OPERATIONS INCOME (LOSS) FROM DISCONTINUED OPERATIONS, Net of Tax NET INCOME NET INCOME PER SHARE FROM CONTINUING OPERATIONS: 2011 $4,158,058 1,639 188 2,518,870 1,888,248 437,120 2010 $3,468,777 1,256,596 2,212,181 1,589,501 400,804 (10,056 231,932 3,362 228,570 47 190,030 3,57Z 186,453 S 126862 127,658 150,283 BASIC DILUTED 46 1.42 1.67 NET INCOME (LOSS) PER SHARE FROM DISCONTINUED OPERATIONS BASIC DILUTED NET INCOME PER SHARE: BASIC DILUTED 0.01 47 43 WEIGHTED-AVERAGE SHARES OUTSTANDING: BASIC DILUTED 86,848 88,061 89.851 DIVIDENDS DECLARED PER SHARE OTHER COMPREHENSIVE INCOME (LOSS) $(8,655) Foreign Currency Translation Adjustments Gains (Losses) on Marketable Securities, net of taxes of taxes of $(5,526), $ 3,399 $366 and $(4,826) for Fiscal 2011, and Fiscal 2010 9,409 (622) Unrealized Gain (Loss) on Derivative Financial Instruments, net of taxes Of $(1,216, $188 and $265 for Fiscal 2011, and Fiscal 2010 12.217 12,971 $ 140,629 Other Comprehensive Income S2.457 $152,740 COMPREHENSIVE INCOME

Explanation / Answer

i) Current Ratio:

Particulars

2011

2010

Current Ratio:

Current Assets / Current Liabilities

Current Assets / Current Liabilities

Abercrombie:

Current Assets

1,426,781

1,235,846

Current Liabilities

552,364

449,372

Current Ratio

1,426,781 / 552,364 = 2.583

1,235,846 / 449,372 = 2.750

Limited Brands:

Current Assets

2,592

3,250

Current Liabilities

1,504

1,322

Current Ratio

2,592 / 1,504 = 1.7234

3,250 / 1,322 = 2.4584

Gap Inc:

Current Assets

3,926

4,664

Current Liabilities

2,095

2,131

Current Ratio

3,926 / 2,095 = 1.874

4664 / 2131 = 2.18864

ii) Acid Test Ratio:

Particulars

2011

2010

Acid Test Ratio:

(Cash + Accounts Receivable + Short term Investments) / Current Liabilities

Abercrombie:

Liquid Assets

826,353 + 74,777 = 901,130

680,113 + 32,356 + 90,865 = 803,334

Current Liabilities

552,364

449,372

Acid Test Ratio

1.6314

1.7877

Limited Brands

Liquid Assets

1130 + 232 = 1,362

1,804 + 219 = 2,023

Current Liabilities

1,504

1,322

Acid Test Ratio

0.9055

1.5302

Gap Inc:

Liquid Assets

1,561 + 100 = 1,661

2,348 + 225 + 18 = 2,591

Current Liabilities

2,095

2,131

Acid Test Ratio

0.7928

1.2158

iii) Net Profit Margin

Particulars

2011

2010

Net Profit Margin

Net Profit / Sales

Abercrombie:

Net Profit (See Note)

126,862

150,283

Net Sales

4,158,058

3,468,777

Net Profit Ratio

3.051%

4.3325%

Limited Brands

Net Profit Ratio

8.4%

5.2%

Gap Inc:

Net Profit (See Note)

833

1,204

Net Sales

14,549

14,664

Net Profit Margin

5.725%

8.210%

NOTE: Net Income from discontinued operations is not considered for Net profit margin ratio

iv). Accounts Receivable Turnover

Particulars

2011

2010

Accounts Receivable Turnover

Net Credit Sales/ Average Receivables

Abercrombie:

Net Credit Sales

4,158,058

3,468,777

Average Receivables

74,777

90,865

Accounts Receivable Ratio

55.60

38.17

Limited Brands

Net Credit Sales

9,613

8,632

Average Receivables

232

219

Accounts Receivable Ratio

41.43

39.415

Gap Inc:

Net Credit Sales

14,549

14,664

Average Receivables

NA

NA

Accounts Receivable Ratio

Cannot be determined

Cannot be determined

NOTE: In the absence of given, information it is assumed that all sales is on credit

Particulars

2011

2010

Current Ratio:

Current Assets / Current Liabilities

Current Assets / Current Liabilities

Abercrombie:

Current Assets

1,426,781

1,235,846

Current Liabilities

552,364

449,372

Current Ratio

1,426,781 / 552,364 = 2.583

1,235,846 / 449,372 = 2.750

Limited Brands:

Current Assets

2,592

3,250

Current Liabilities

1,504

1,322

Current Ratio

2,592 / 1,504 = 1.7234

3,250 / 1,322 = 2.4584

Gap Inc:

Current Assets

3,926

4,664

Current Liabilities

2,095

2,131

Current Ratio

3,926 / 2,095 = 1.874

4664 / 2131 = 2.18864

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