CALCULATING AND INTERPRETING PROFITABILITY RATIOS. Abercrombie & Fitch sells casual apparel and personal care products for men, women, and children through retail stores located primarily in shopping malls. Its fiscal year ends January 31 of each year. Financial statements for Abercrombie & Fitch for fiscal years end- ing January 31, Year 3, Year 4, and Year 5 appear in Exhibit 4.32 (balance sheets), Exhibit 4.33 (income statements), and Exhibit 4.34 (statements of cash flows). These financial state- ments reflect the capitalization of operating leases in property, plant, and equipment and long-term debt, a topic discussed in Chapter 6. Exhibit 4.35 (see page 322) presents finan- cial statement ratios for Abercrombie & Fitch for Year 3 and Year 4. Selected data for Abercrombie & Fitch appear here.
Required
a. Calculate the ratios in Exhibit 4.35 for Year 5. The income tax rate is 35 percent.
b. Analyze the changes in ROA for Abercrombie & Fitch during the three-year period, suggesting possible reasons for the changes observed.
c. Analyze the changes in ROCE
Text Book: Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective By James Wahlen, Stephen Baginski, Mark Bradshaw.