In this chapter, we discussed the importance of analyzing financial results based on an understanding of the company's business strategy. Using the ROE model, we illustrated how different strategies could earn high returns for investors. Both Nordstrom and JCPenney are in the retail industry. Nordstrom is a specialty apparel retailer operating in 23 states. Annual revenues exceed S5 billion. The store is well known for high-quality merchandise and a high level of customer service. JCPenney is a full-line retailer appealing to middle income shoppers. Its merchandise is moderately priced, and customers receive a lower level of sen ice. The following are several ratios from each company. Identify which company is Nordstrom and which is JCPenney. Which of these ratios do you think are affected by the different strategies? Explain.

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Ratio Company A Company B Gross margin 34.4 23.1 Profit margin 4.0 1.7 Current ratio 1.8 1.6 Debt to equity 0.8 1.4 Return on equity 15.9 7.5 Return on assets 6.5 2.3 Dividend payout 22.1 Price/earnings 15.3 117.0 9.3