Access the 2010 annual report of American Eagle Outfitters by clicking on the About AEO Inc., AE Investment Info, and Historical Annual Reports links at www.ae.com. Also, access the 2010 annual report of Gap Inc. by clicking on the Investors, Financial Information, and Annual Reports & Proxy links at www.gapinc.com.
a. Conduct horizontal and vertical analyses of sales, cost of goods sold, gross profit, inventory, and total assets for each company.
b. Compute the inventory turnover and days-ininventory ratios for each company.
c. Compare each company's management of inventory. Is one company better than the other?
d. Look in the notes to the financial statements. Do the companies use the same or different inventory costing methods? Do the methods used match the companies' actual physical flow of inventory?