Refer to the financial statements of American Eagle Outfitters (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book.
Required:
1. Compute the quality of income ratio for both companies for the most recent reporting year.
Which company has a better quality of income ratio?
2. Compare the quality of income ratio for both companies to the industry average. Are these companies producing more or less cash from operating activities relative to net income than the average company in the industry?
3. Compute the capital acquisitions ratio for both companies for the most recent reporting year. Compare their abilities to finance purchases of property, plant, and equipment with cash provided by operating activities.
4. Compare the capital acquisitions ratio for both companies to the industry average. How does each company’s ability to finance the purchase of property, plant, and equipment with cash provided by operating activities compare with that of other companies in the industry?