Question

In early 2016​, the following information was true about Abercrombie and Fitch​ (ANF) and The Gap​ (GPS), both clothing retailers. Values​ (except price per​ share) are in millions of dollars.

ANF Book Equity= $1,294 ANF Price Per Share=$24.72 ANF Number of shares=69.81 million

GPS Book Equity=$2,549 GPS Price Per Share=$24.37 GPS Number of shares=400.09 million

a. What is the​ market-to-book ratio of each​ company?

b. What conclusion do you draw from comparing the two​ ratios?

Answer 1

Market to Book Ratio	=	Market Capitalization/Book Value
ANF	=	24.72*(69.81*10^6)/(1,294*(69.81*10^6))
	=	1.91%
GPS	=	24.37*(400.09*10^6)/(2549*(400.09*10^6))
	=	0.96%

From comparing the two ratios, we came to a conclusion that GPS is having market value of 0.96% of its book value whereas ANF is having the market value of 1.91% of its book value. Thus, GPS is in a much better state as compared to ANF because the company having book to market ratio closest is considered good.