Gap is a close competitor of Deckers Outdoor and Wolverine in the teenage apparel industry. Gap also owns the Old Navy and Banana Republic clothing chains. Gap reported higher earnings than Deckers Outdoor and Wolverine in 2012. Does that mean Gap is more profitable? Maybe, but we need to control for differences in company size to accurately compare across companies. Selected financial data for Gap is provided as follows:

Required:
1. Calculate the return on equity for Gap in 2012. How does it compare with the return on equity for Deckers Outdoor and Wolverine reported in the chapter?
2. Calculate the return on the market value of equity for Gap in 2012. How does it compare with the return on the market value of equity for Deckers Outdoor and Wolverine reported in the chapter?
3. Why is the return on the market value of equity for Gap, Deckers Outdoor, and Wolverine so much lower than the return on equity?
4. Calculate the price-earnings ratio for Gap in 2012. How does it compare with the price-earnings ratio for Deckers Outdoor and Wolverine reported in thechapter?

Transcribed Image Text:

($ in millions) Sales Net income Total assets Total liabilities Stockholders' equity 2012 2011 $14,549 833 4,667 2,755 422-065 S 2,985 4,080 37422 105 Total liabilities and stockholders' equity Average shares outstanding (in millions) Stock price, ending 485 $ 18.93