17. [Common-size statements; analysis of ROA, competitive strategies] Ann Taylor and The Iimited compete in the market for apparel for the fashion-conscious professional woman. Ann Taylor targets the "better-price" and "upper-moderate price" categories whereas The Limited has a broader target audience. Financial data of the two companies is presented below in columns labeled Company and Company 2. (Note: The amounts are in Smillions for one column and $10 millions for the other.) Company 1 Company 2 Sales $1,084 S977 Cost of goods sold (536) (644) Gross margin $ 548 $333 Operating expenses (414) (241) Operating income $ 134 $ 92 Total assets $ 765 $413

a. Prepare common-size income statements for Company 1 and Company 2.

b. Calculate ROA for each company and disaggregate the ROA into profitability and activity components.

c. Using the information from parts a and

b. identify which company is Ann Taylor and which is The Limited. Justify your choice.

d. Explain how the financial data computed in parts a and b re- flect the companies' competitive strategies.