Kohl's Corporation is a national retail department store. The company's total revenues for the year ended January 29, 2010, were $18 billion. J.C. Penney is a similar size department store company with $18 billion of revenues. The following ratios for the two companies were obtained for that fiscal year from reuters.com/finance:
Ratio Kohl's J.C. Penney
Gross profit percentage ........... 38.2% ....................... 39.2%
Net profit margin ................... 6.0% ......................... 2.1%
Return on equity .................. 14.0% ...................... 7.38%
EPS ................................. $ 3.75 ....................... $ 1.57
Inventory turnover ratio ............ 3.81 .......................... 3.46
Current ratio ......................... 2.08 ......................... 2.41
Debt to assets ....................... 0.96 ......................... 0.98
P/E ratio ............................. 14.2 ......................... 23.3
Required:
1. Which company appears more profitable? Describe the ratio(s) that you used to reach this decision.
2. Which company appears more liquid? Describe the ratio(s) that you used to reach this decision.
3. Which company appears more solvent? Describe the ratio(s) that you used to reach this decision.
4. Are the conclusions from your analyses in requirements 1-3 consistent with the value of the two companies, as suggested by their P/E ratios? If not, offer one explanation for any apparent inconsistency?