Refer to the financial statements of American Eagle Outfitters given in Appendix B and Abercrombie

& Fitch given in Appendix C and the Industry Ratio Report given in Appendix D at the end of this book, or open file CPl-3.xls in the Annual Report Cases directory on the student CD-ROM.

Required: 1. Both companies report "basic" earnings per share on their income statements and the market price per share of their stock in a note near the end of the annual report. Using current year's earnings per share and the highest stock price per share reported for the last quarter of the most recent year, compute the price/earnings ratio. Which company provided the highest price/earnings ratio for the current year? 2. Which company do investors believe will have the higher growth in earnings in the future? 3. Examine the Industry Ratio Report. Compare the price/earnings ratio for each company to the industry average. Did you expect these two companies, which are relative newcomers to the industry, to have price/earnings ratios above or below the industry average? Why?