Refer to the financial statements and accompanying notes of American Eagle Outfitters given in Appendix B. Abercrombie & Fitch given in Appendix C. and the Industry Ratio Report given in Appendix D at the end of this book or open file CP2-3.xls in the Annual Report Cases directory on the student CD-ROM.

Required: 1. Which company is larger in terms of total assets? 2. Compute the financial leverage ratio for both companies. Which company is assuming more risk?

Why do you think that this is so? 3. Compare the financial leverage ratio for both companies to the industry average from the Industry Ratio Report. Are these two companies financing assets with debt more or less than the industry average? How is the financial leverage ratio influenced by these companies" choice to rent space instead of buying it? 4. In the most recent year, what were the net cash flows (that is. the increases in cash minus the decreases in cash) related to the buying: maturing, and selling of investments (marketable securities)

for each company? 5. How much did each company pay in dividends for the most recent year 1 6. What account title does each company use to report any land, buildings, and equipment it may have?