Certain financial ratios for The Gap for its most recent year are given below, along with the average ratios for its industry. Based on those ratios, answer the following. 1) Does The Gap seem to prefer to finance its assets with debt or with equity? How can you tell? What percent of its assets are funded with debt? What percent of its assets are funded with equity? 2) A supplier to The Gap sells merchandise to The Gap and asks to be paid within 60 days. While any of The Gap’s financial ratios might be of interest to the supplier, which of the ratios listed below do you think would likely be the most important one to the supplier? Why? 3) Which of the ratios presented suggest that, compared to its industry, The Gap may have a problem controlling its operating expenses? How can you tell? Your answer should clearly indicate that you understand why the ratio that you chose answers this question. Here is the data for The Gap and its industry. Financial Ratios The Gap Industry Current ratio 2.1 0.9 Quick ratio 0.9 0.5 Inventory turnover 2.1 X 5.8 X Operating profit margin 7.0% 13.0% Debt ratio 21.5% 25.9% Return on equity 5.6% 17.4%
Certain financial ratios for The Gap for its most recent year are given below, along with the average ratios for its industry. Based on those ratios, answer the following.
1) Does The Gap seem to prefer to finance its assets with debt or with equity? How can you tell? What percent of its assets are funded with debt? What percent of its assets are funded with equity?
2) A supplier to The Gap sells merchandise to The Gap and asks to be paid within 60 days. While any of The Gap’s financial ratios might be of interest to the supplier, which of the ratios listed below do you think would likely be the most important one to the supplier? Why?
3) Which of the ratios presented suggest that, compared to its industry, The Gap may have a problem controlling its operating expenses? How can you tell? Your answer should clearly indicate that you understand why the ratio that you chose answers this question.
Here is the data for The Gap and its industry.
Financial Ratios The Gap Industry
Quick ratio 0.9 0.5
Inventory turnover 2.1 X 5.8 X
Operating profit margin 7.0% 13.0%
Debt ratio 21.5% 25.9%
Return on equity 5.6% 17.4%
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