Abercrombie & Fitch sells casual apparel and personal care products for men, women, and children through retail stores located primarily in shopping malls. Its fiscal year ends January 31 of each year. Financial statements for Abercrombie & Fitch for fiscal years ending January 31, Year 3, Year 4, and Year 5 appear in Exhibit 4.34 (balance sheets), Exhibit 4.35 (income statements), and Exhibit 4.36 (statements of cash flows). These financial statements reflect the capitalization of operating leases in property, plant, and equipment and long-term debt, a topic discussed in Chapter 6. Exhibit 4.37 (page 257) presents financial statement ratios for Abercrombie & Fitch for Years 3 and 4. Selected data for Abercrombie & Fitch appear here.

REQUIREDa. Calculate the ratios in Exhibit 4.37 for Year 5. The income tax rate is 35%.b. Analyze the changes in ROA for Abercrombie & Fitch during the three-year period, suggesting possible reasons for the changes observed.c. Analyze the changes in ROCE for Abercrombie & Fitch during the three-year period, suggesting possible reasons for the changes observed.

Transcribed Image Text:

Exhibit 4.34 Abercrombie & Fitch Balance Sheets (amounts in millions) (Problem 4.25) January 31, Year 5 Year 4 Year 3 Year 2 ASSETS Cash $ 350 $ 56 $ 43 $ 188 Marketable securities Accounts receivable 465 387 51 26 7 10 21 Inventories 248 201 169 130 Prepayments 28 24 20 15 Total Current Assets $ 753 $ 629 $ 652 1,560 $ 405 Property, plant, and equipment, net Other assets 1,342 1,172 947 1 1 Total Assets $2,220 $2,096 $1,802 $1,352 LIABILITIES AND SHAREHOLDERS' EQUITY $ 58 $ 79 $ 32 Accounts payable Short-term borrowing Other current liabilities 84 54 33 276 220 193 132 Total Current Liabilities $ 414 $ 311 $ 272 $ 164 Long-tem debt Other noncurrent liabilities 872 713 629 581 265 214 165 12 Total Liabilities $1,551 $1,238 $1,066 $ 757 Common stock 1 1 1 24 1 Additional paid-in capital Retained earnings Treasury stock Total Shareholders' Equity Total Liabilities and Shareholders' Equity 140 139 143 141 1,076 (548) 906 701 520 (188) (109) (67) $ 669 $2,220 $ 858 $2,096 $ 736 $1,802 $ 595 $1,352 %24