Which is trading at a lower price per dollar of earnings

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Question: Gap is a close competitor of Deckers Outdoor and Timberland in the teenage apparel industry. Gap also owns the Old Navy and Banana Republic clothing chains. Gap reported higher earnings than Deckers Outdoor and Timberland in 2009. Does that mean Gap is more profitable? Maybe, but we need to control for the differences in company size in order to accurately compare the profitability of the companies. Selected financial data for Gap is provided as follows:

Required: 1. Calculate the return on equity for Gap in 2009. How does it compare with the return on equity for Deckers Outdoor and Timberland reported in the chapter?

2. Calculate the return on the market value of equity for Gap in 2009. How does it compare with the return on the market value of equity for Deckers Outdoor and Timberland reported in the chapter?

3. Why is the return on the market value of equity for Gap so much lower than the return on equity?

4. Calculate the price-earnings ratio for Gap in 2009. How does it compare with the price-earnings ratio for Deckers Outdoor and Timberland reported in the chapter? Which is trading at a lower price per dollar of earnings?

Reference no: EM131522186

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