Calculating and interpreting profitability and risk ratios. The GAP and The Limited maintain leading market positions in the specialty apparel retailing market. The products of The GAP (jeans, blouses, shirts) are more standardized than those of The Limited. The products of The Limited are more fashion oriented and glitzy. Exhibit 5.24 presents comparative balance sheets for The GAP and The Limited at the end of Year 10 and Year 11. Exhibit 5.25 presents an income statement for each firm for Year 11. Cash flows from operations for Year 11 were \(\$ 1,478\) million for The GAP and \(\$ 586\) million for The Limited. The income tax rate is 35 percent. On the basis of this information and appropriate financial statement ratios, which company is

a. more profitable in Year 2?

b. less risky in terms of short-term liquidity in Year 2?

c. less risky in terms of long-term solvency in Year 2?

Transcribed Image Text:

EXHIBIT 5.20 WAL-MART STORES, INC. Comparative Balance Sheet (all dollar amounts in millions) Problem 27] January 31 Year 7 Year 8 Year 9 Year 10 ASSETS Cash Accounts Receivable.. Inventories Prepayments $ 1,447 $ 1,879 $1,856 $2,054 976 1,118 1,341 1,768 16,497 17,076 19,793 21,442 432 1,059 1,366 1,291 Total Current Assets $19,352 $21,132 $24,356 $26,555 Property, Plant, and Equipment (net) 26,344 2,426 28,756 39,001 45,417 2,891 10,024 10,641 $48,122 $52,779 $73,381 $82,613 Other Assets. Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable... Notes Payable Current Portion of Long-term Debt . Other Current Liabilities $ 9,126 $10,257 $13,105 Total Current Liabilities Long-term Debt Other Noncurrent Liabilities Total Liabilities. Common Stock $15,092 3,323 2,286 1,141 4,193 1,006 2,085 4,375 5,499 7,290 7,196 $14,460 $16,762 $25,803 $28,949 12,412 12,390 19,706 20,138 2,747 2,515 2,038 2,183 $29,619 $31,667 $47,547 $51,270 $ 224 $ 445 $ 446 $ 447 585 435 714 1,411 24,674 29,485 Additional Paid-in Capital Retained Earnings Total Shareholders' Equity Total Liabilities and Shareholders" Equity 17,694 20,232 $18,503 $21,112 $25,834 $31,343 $48,122 $52,779 $73,381 $82,613