In early 2018, Abercrombie & Fitch (ANF) had a book equity of $1,256 million, a price per share of $22.89, and 68.5 million shares outstanding. At the same time, The Gap (GPS) had a book equity of $3,130 million, a share price of $31.83, and 384 million shares outstanding. a. What is the market-to-book ratio of each of these clothing retailers? b. What conclusions do you draw from comparing the two ratios? a. What is the market-to-book ratio of each of these clothing retailers? ANF's market-to-book ratio is (Round to two decimal places.) GPS's market-to-book ratio is (Round to two decimal places.) b. What conclusions do you draw from comparing the two ratios? In a relative sense, the outlook of Abercrombie & Fitch more favorably than The Gap. For every dollar of equity invested in ANF the market values that dollar today at $1.25 vs. $3.91 for a dollar invested in the GPS. Equity investors are willing to pay relatively more today for shares of ANF than for GPS because they expect ANF to produce superior performance in the future. Is the above statement true or false? (Select from the drop-down menu.)
In early 2018, Abercrombie & Fitch (ANF) had a book equity of $1,256 million, a price per share of $22.89, and 68.5 million shares outstanding. At the same time, The Gap (GPS) had a book equity of $3,130 million, a share price of $31.83, and 384 million shares outstanding. a. What is the market-to-book ratio of each of these clothing retailers? b. What conclusions do you draw from comparing the two ratios? a. What is the market-to-book ratio of each of these clothing retailers? ANF's market-to-book ratio is (Round to two decimal places.) GPS's market-to-book ratio is (Round to two decimal places.) b. What conclusions do you draw from comparing the two ratios? In a relative sense, the outlook of Abercrombie & Fitch more favorably than The Gap. For every dollar of equity invested in ANF the market values that dollar today at $1.25 vs. $3.91 for a dollar invested in the GPS. Equity investors are willing to pay relatively more today for shares of ANF than for GPS because they expect ANF to produce superior performance in the future. Is the above statement true or false? (Select from the drop-down menu.)
Financial Accounting
14th Edition
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Carl Warren, Jim Reeve, Jonathan Duchac
Chapter13: Corporations: Organization, Stock Transactions, And Dividends
Section: Chapter Questions
Problem 4CP
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Question
Transcribed Image Text:In early 2018, Abercrombie & Fitch (ANF) had a book equity of $1,256 million, a price per share of $22.89, and 68.5 million
shares outstanding. At the same time, The Gap (GPS) had a book equity of $3,130 million, a share price of $31.83, and
384 million shares outstanding.
a. What is the market-to-book ratio of each of these clothing retailers?
b. What conclusions do you draw from comparing the two ratios?
a. What is the market-to-book ratio of each of these clothing retailers?
ANF's market-to-book ratio is
(Round to two decimal places.)
GPS's market-to-book ratio is
. (Round to two decimal places.)
b. What conclusions do you draw from comparing the two ratios?
In a relative sense, the outlook of Abercrombie & Fitch more favorably than The Gap. For every dollar of equity invested in
ANF the market values that dollar today at $1.25 vs. $3.91 for a dollar invested in the GPS. Equity investors are willing to
pay relatively more today for shares of ANF than for GPS because they expect ANF to produce superior performance in
the future.
Is the above statement true or false?
(Select from the drop-down menu.)
Expert Solution
Step 1
The market-to-book ratio denotes how much the investors are willing to pay for each dollar in net assets. A lower market-to-book ratio is generally better because it gives better value to the investors. A low ratio (less than 1) indicates that the stock is undervalued (poor investment), whereas a high ratio (greater than 1) indicates that the stock is overvalued (excellent investment) (i.e. it has performed well).
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