Question

1. go to www.sec.gov (Links to an external site.)Links to an external site. 2. Hover your cursor over "Filings" in the menu bar across the top 3. click on "company filings search" that pops up when you hover 4. in the FAST SEARCH box on the far right type in "AEO" for the ticker and click "search" for American Eagle. For Buckle type in "BKE". 5. in the "filings" column on the far left look for the most recent "10-K" filing and click on the "interactive data" link for the 10-K annual report in the "format" column 6. in the yellow box on the far left click on "financial statements" and the item will expand 7. select the Financial statement(s) that you need to review to find the answer to the questions.

A. Does American Eagle or Buckle have higher liquidity risk (lower ratio) based on the current ratio for the most recent year?

American Eagle

Buckle

About the same

B. Does American Eagle or Buckle have higher liquidity risk due to a higher # of days in inventory ratio for the most recent year?

American Eagle

Buckle

about the same

C. Does American Eagle or Buckle have higher solvency risk based on the debt to equity ratio for the most recent year?

American Eagle

Buckle

about the same

D. Based on the answers in questions 12-1 through 12-3 above concerning liquidity and solvency risk ratios, which company poses higher risk to investors?

American Eagle

Buckle

about the same

E. Which company has a higher gross profit % and profit margin %?

American Eagle

Buckle

About the same

Answer 1

Part A

Answer is American Eagle

Current Ratio = current assets / current liabilities

AEO = 968530/485221= 2.00

BKE = 360584/97906 = 3.68

Therefore, American Eagle has higher liquidity risk (lower ratio) based on the current ratio for the most recent year.

Part B

Answer is Buckle

Inventory ratio = 365*Average Inventory / cost of goods sold

AEO = 365*((398213 + 358446) /2) / 2425044 = 56.94 days

BKE = 365*((118007+125694) /2) / 533357 = 83.39 days

Therefore, Buckle has higher solvency risk based on the debt to equity ratio for the most recent year

Part C

Answer is American Eagle

Debt equity ratio = total liabilities / total stockholders' equity

AEO = (485221+84301) / 1246791 = 0.46

BKE = 146868 / 391248 = 0.38

American Eagle has higher solvency risk based on the debt to equity ratio for the most recent year

Part D

above concerning liquidity and solvency risk ratios, and American Eagle poses higher risk to investors.

Part E

Answer is Buckle

Gross profit ratio = gross profit / sales

AEO = 1370505/ 3795549 = 36.11%

BKE = 380023/ 913380 = 41.61%

Profit margin = net income / sales

AEO = 204163 / 3795549 = 5.38%

BKE = 89707/913380 = 9.82%

Therefore, Buckle has a higher gross profit % and profit margin %.