Refer to the financial statements of Abercrombie & Fitch and Aeropostale that are supplied with this text.
1. With regard to depreciation methods:
a. What depreciation method does Abercrombie & Fitch use? What depreciation method does Aeropostale use?
b. What are the typical useful lives of each company’s operating assets?
c. What effect will the useful lives have on the company’s financial statements?
2. Refer to the statement of cash flows:
a. What is the amount of depreciation and amortization expense that each company reported for the three years presented?
b. How much did each company spend on the acquisition of operating assets (capital expenditures) in each of the last three years?
c. Is the change in depreciation and amortization expense consistent with the pattern of capital expenditures observed? Why or why not?
3. Compute the fixed asset turnover and the average age of fixed assets for each company. What conclusions can you draw from these ratios?