Calculating and interpreting profitability and risk ratios. The Gap and Limited Brands maintain leading market positions in the specialty apparel retailing market. The products of The Gap (jeans. blouses, shirts) are more standardized than those of Limited Brands. The products of Limited Brands are more fashion'oriented and glitzy. Exhibit 6.31 presents the comparative income statements for fiscal year 2008 and Exhibit 6.32 presents comparative balance sheets for The Gap and Limited Brands at the end of their 2007 and 2008 fiscal years. Cash flows from operations for fiscal year 2008 were $2,081 million for, the Gap and $765 million for Limited Brands. The income tax rate is 35°/o. Both companies repurchase their own previously issued common stock, called treasury stock, a topic discussed in Chapter 14. On the basis of this information and appropriate financial statement ratios, which company is

a. More profitable in fiscal year 2008?

b. Less risky in terms of short-term liquidity in fiscal year 2008?

c. Less risky in terms of long-term liquidity in fiscal year2008?

The Gap and Limited Brands Comparative Income Statements (all dollar amounts in millions) (Problem 29) EXHIBIT 6.31 The Gap For the Year Ended January 31, 2008: Limited Brands Sales . $15,763 $10,134 Interest Revenue 117 146 Net Gains from Divestments of Retail Stores 230 Tatal Revenues $15,880 $10,510 Expenses: $ 6,592 Cost of Goods Sold $10,071 Selling and Administrative 2,640 4,377 Interest 149 26 Income Taxes. 539 411 $ 9,792 Tatal Expenses $15,013 Net Income $ 867 718