Lumber Liquidators, Inc., competes with Lowe's in product lines such as hardwood flooring, moldings, and noise-reducing underlay. The two companies reported the following financial results in fiscal 2008:

Required:
1. Explain how Lumber Liquidators could have a substantially higher gross profit percentage than Lowe's but a nearly identical net profit margin. What does this suggest about the relative ability of the two companies to control operating expenses?
2. Explain how Lumber Liquidators could have a higher return on equity but lower earnings per share. What does this suggest about the companies' relative number of outstanding shares? What other explanations could account for this seemingly contradictory pattern?

Transcribed Image Text:

Gross profit percentage Net profit margin Return on equity Lumber Liquidators 35.0% 4.7% 21.1% Lowe's 34.2% 4.6% 12.9% Earnings per share $ 0.83 $ 1.51