Refer to the financial statements 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 CP13-3.xls in the Annual Report Cases directory on the student CD-ROM.

Required: 1. Compute the quality of income ratio for both companies for the current year. Why might they be different? 2. Compare the quality of income ratio for both companies to the industry average. Are these companies producing more or less cash from operating activities relative to net income than the average company in the industry? Does comparing the sales growth rate for these two companies to the industry average help explain why their quality of income ratio is above or below the industry average?

Explain. Note that Sales Growth Rate = (Current Net Sales - Prior Net Sales)/Prior Net Sales. 3. Compute the capital acquisitions ratio for both companies for the current year. Compare their abilities to finance purchases of property, plant, and equipment with cash provided by operating activities. 4. Compare the capital acquisitions ratio for both companies to the industry average. How do these two companies' abilities to finance the purchase of property, plant, and equipment with cash provided by operating activities compare to those of the industry?