Question

Compute, Disaggregate and Interpret ROE and ROA Income statements for The Gap, Inc., follow, along with selected balance sheet information ($ millions). The GAP, INC. Consolidated Statement of Earnings Fiscal year ended Jan. 31, 2015 Feb. 1, 2014 Net sales $16,435 $16,148 Cost of goods sold and occupancy expenses 10,146 9,855 Gross profit 6,289 6,293 Operating expenses 4,206 4,144 Operating income 2,083 2,149 Interest expense Interest income (5) Income before income taxes 2,013 2,093 Income taxes 751 813 Net earnings $1,262 $1,280 75

Answer 1

a)
	Average Stockholders Equity = (beginning Stockholders Equity + ending Stockholders Equity)/2
	= ( $3062+2983)/2
	= $ 3022.5
	Return On Stockholders Equity = Net Income / Average Stockholders Equity
	= $1262/3022.5
	=41.8 %
	Average Assets = (beginning Assets + ending Assets)/2
	= ( $7849+7690)/2
	= $ 7769.5
	Return On Assets = Net Income / Average Assets
	= $1262/7769.5
	=16.2 %
	ROFL = Return on equity - return on assets
	=41.8%-16.2
	=25.6%
b)	Profit Margin = Net Income / Sales
	= $1262/16435
	=7.7 %
	Assets Turnover Ratio = Sales / average Assets
	= $16435/7769.5
	=2.1 times
c)	Gross Profit Margin = Gross Profit / Sales
	= $6289/16435
	=38.3 %
	Average Inventory = (beginning inventory + ending inventory)/2
	= ( $1928+1889)/2
	= $ 1908.5
	Inventory Turnover Ratio = Cost of goods sold / average inventory
	= $10146/1908.5
	5.3	times
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