Question

Analyze and compare Abercrombie & Fitch and The Gap Abercrombie & Fitch Co. (ANF) and The Gap, Inc. (GPS) are two U.S. apparel retailers. The current assets and current liabilities for each company from recent balance sheets are as follows (in thousands): Abercrombie & Fitch The Gap Current assets: Cash $547,189 1,783,000 Accounts receivable 93,384 Inventories 399,795 1,830,000 Other current assets 702,000 98,932 $1,139,300 $4,315,000 Total current assets Current liabilities: $ 1,243,000 $187,017 Accounts payable Other current liabilities 1,210,000 298,983 $486,000 2,453,000 Total current liabilities Required: a. Compute the working capital for each company Abercrombie: $ The Gap: $ b. Compute the current ratio for each company. Round to one decin place. Abercrombie: The Gap: c. Compute the quick ratio for each company. Round to one decimal place. Abercrombie: The Gap: d. Which company appears to have the greater short-term liquidity? Why? Abercrombie has a greater short-term liquidity position because it's current and quick ratio is better than The Gap.

Answer 1

a) Working capital = Current assets-Current liabilities

Abercrombie = 1139300-486000 = 653300

The Gap = 4315000-2453000 = 1862000

b) Current ratio = Current assets/Current liabilities

Abercrombie = 1139300/486000 = 2.3

The Gap = 4315000/2453000 = 1.8

c) Quick ratio = Quick assets/current liabilities

Abercrombie = 640573/486000 = 1.3

The Gap = 1783000/2453000 = 0.7