Question

n 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. Book Equity Price Per Share Number of Shares ANF ​$1 comma 294 ​$21.85 65.39 million GPS ​$2 comma 546 ​$25.18 395.38 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

(a)-Market-to-book ratio

Market-to-book ratio - ANF

Market-to-book ratio = Total Market Value / Book Value of Equity

= (65.39 Million Shares x $21.85) / $1,294 Million

= $1,428.77 Million / $1,294 Million

= 1.10

Market-to-book ratio - ANF

Market-to-book ratio = Total Market Value / Book Value of Equity

= (65.39 Million Shares x $21.85) / $1,294 Million

= $1,428.77 Million / $1,294 Million

= 1.10

Market-to-book ratio – GPS

Market-to-book ratio = Total Market Value / Book Value of Equity

= (395.38 Million Shares x $25.18) / $2,546 Million

= $9,955.67 Million / $2,546 Million

= 3.91

(b)-Conclusion

From the above Market-to-book ratio, we can find that the The Gap​ (GPS) is more favorable than Abercrombie and Fitch​ (ANF). Since, the Gap (GPS) has an higher Market-to-book ratio of 3.91 as compared to the Market-to-book ratio of Abercrombie and Fitch (ANF) of 1.10.