Chapter 03 - Operating Decisions and the Income Statement

Chapter 03 Operating Decisions and the Income Statement

ANSWERS TO MULTIPLE CHOICE

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. c a b b b c d b a b

EXERCISES
E32. Req. 1 Cash Basis Income Statement Revenues: Cash sales Customer deposits Expenses: Inventory purchases Wages paid Utilities paid Net Income $520,000 35,000 Accrual Basis Income Statement Revenues: Sales to customers $630,000

90,000 164,200 17,200 $283,600

Expenses: Cost of sales Wages expense Utilities expense Net Income

387,000 169,000 18,940 $55,060

Req. 2

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Chapter 03 - Operating Decisions and the Income Statement

Accrual basis financial statements provide more useful information to external users. Financial statements created under cash basis accounting normally postpone (e.g., $110,000 credit sales) or accelerate (e.g., $35,000 customer deposits) recognition of revenues and expenses long before or after goods and services are produced and delivered (until cash is received or paid). They also do not necessarily reflect all assets or liabilities of a company on a particular date. E33. Amount of Revenue Earned in September No revenue earned in September; earnings process is not yet complete. $12 (= $1,200 x 12% x 1month/12 months) $18,050 No transaction has occurred; exchange of promises only. $15,000 (= 1,000 shirts x $15 per shirt); revenue earned when goods are delivered. Payment related to revenue recorded previously in (e) above. No revenue earned in September; earnings process is not yet complete. No revenue is earned; the issuance of stock is a financing activity. No revenue earned in September; earnings process is not yet complete. $3,660,000 (= $18,300,000 5 games) No revenue earned in September; earnings process is not yet complete. $18,400 $100

Activity a. b. c. d. e. f. g. h. i. j. k. l. m.

Revenue Account Affected None Interest revenue Sales revenue None Sales revenue None None None None Ticket sales revenue None Sales revenue Sales revenue

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Chapter 03 - Operating Decisions and the Income Statement

E34. Activity a. b. Expense Account Affected Utilities expense Advertising expense Amount of Expense Incurred in January $2,754 $282(= $846 x 1 month/3 months) incurred in January. The remainder is a prepaid expense (A) that is not incurred until February and March. $189,750 incurred in January. The remaining half was incurred in December. Expense will be recorded when the related revenue has been earned. Expense will be recorded in the future when the related revenue has been earned. $40,050 (= 450 books x $89 per book) December expense paid in January. $14,470 Expense will be recorded as depreciation over the equipments useful life. $5,190 (= $4,000 + $2,600 - $1,410) $104 (= 8 hours x $13 per hour) $300 (= $3,600 12 months) $300 $202 $1,285 December expense paid in January. $5,000 (= 500 shirts x $10 per shirt)

c.

Salary expense

d. e. f. g. h. i. j. k. l. m. n. o. p. q.

None None Cost of goods sold None Commission expense None Supplies expense Wages expense Insurance expense Repairs expense Utilities Expense Consulting Expense None Cost of goods sold

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Chapter 03 - Operating Decisions and the Income Statement

E38. Req. 1 a. Cash (+A) ................................................................... 2,500,000 Short-term note payable (+L) ........................... 2,500,000 Debits equal credits. Assets and liabilities increase by the same amount. Equipment (+A) .......................................................... 95,000 Cash (A)......................................................... 95,000 Debits equal credits. Assets increase and decrease by the same amount. Merchandise inventory (+A)........................................ 40,000 Accounts payable (+L) ..................................... 40,000 Debits equal credits. Assets and liabilities increase by the same amount. Repair and maintenance expense (+E, SE) ............. 62,000 Cash (A)......................................................... 62,000 Debits equal credits. Expenses decrease retained earnings (part of stockholders' equity). Stockholders' equity and assets decrease by the same amount. Cash (+A) ................................................................... 372,000 Unearned pass revenue (+L) ........................... 372,000 Debits equal credits. Since the season passes are sold before Vail Resorts provides service, revenue is deferred until it is earned. Assets and liabilities increase by the same amount.

b.

c.

d.

e.

f. Two transactions occur: (1) Accounts receivable (+A) ...................................... 750 Ski shop sales revenue (+R, +SE) ................... 750 Debits equal credits. Revenue increases retained earnings (a part of stockholders' equity). Stockholders' equity and assets increase by the same amount. (2) Cost of goods sold (+E, SE) ................................ 450 Merchandise inventory (A) ............................. 450 Debits equal credits. Expenses decrease retained earnings (a part of stockholders' equity). Stockholders' equity and assets decrease by the same amount.

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Chapter 03 - Operating Decisions and the Income Statement

E38. (continued) g. Cash (+A) ................................................................... 270,000 Lift revenue (+R, +SE) ..................................... 270,000 Debits equal credits. Revenue increases retained earnings (a part of stockholders' equity). Stockholders' equity and assets increase by the same amount. Cash (+A) ................................................................... 3,200 Unearned rent revenue (+L) ............................ 3,200 Debits equal credits. Since the rent is received before the townhouse is used, revenue is deferred until it is earned. Assets and liabilities increase by the same amount. Accounts payable (L) ................................................ 20,000 Cash (A)......................................................... 20,000 Debits equal credits. Assets and liabilities decrease by the same amount. Cash (+A) ................................................................... 400 Accounts receivable (A) ................................. 400 Debits equal credits. Assets increase and decrease by the same amount. Wages expense (+E, SE) ......................................... 258,000 Cash (A)......................................................... 258,000 Debits equal credits. Expenses decrease retained earnings (a part of stockholders' equity). Stockholders' equity and assets decrease by the same amount.

h.

i.

j.

k.

Req. 2 Accounts Receivable Beg. bal. 1,200 400 (j) (f) 750 End. bal. 1,550

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Chapter 03 - Operating Decisions and the Income Statement

E39. 2/1 Rent expense (+E, SE) ..................................................... Cash (A) ................................................................. 2/2 Fuel expense (+E, SE) ..................................................... Accounts payable (+L) .............................................. 2/4 Cash (+A) ........................................................................... Unearned revenue (+L) ............................................ 2/7 Cash (+A) ........................................................................... Transport revenue (+R, +SE) ................................... 2/10 Advertising expense (+E, SE) ........................................... Cash (A) ................................................................. 2/14 Wages payable (L) ........................................................... Cash (A) ................................................................. 2/18 Cash (+A) ........................................................................... Accounts receivable (+A) .................................................... Transport revenue (+R, +SE) ................................... 2/25 Parts supplies (+A) ............................................................. Accounts payable (+L) .............................................. 2/27 Retained earnings (SE) .................................................... Dividends payable (+L) ............................................. 275 275 490 490 820 820 910 910 175 175 2,300 2,300 1,600 2,200 3,800 2,550 2,550 200 200

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Chapter 03 - Operating Decisions and the Income Statement

E310. Req. 1 and 2 Cash Beg. 6,200 (a) 18,400 2,140 (b) 600 15,000 (c) 820 2,600 (d) 7,200 960 12,520 Equipment Beg. 9,600 (h) 920 10,520 Accounts Payable 9,600 Beg. (g) 2,140 520 (e) 7,980

(g) (i) (j) (k)

Accounts Receivable Beg.30,000 7,200 (d)

Supplies Beg. 1,440 (k) 960

22,800 Land Beg. 7,200 7,200 Unearned Fee Revenue 3,840 Beg. 600 (b) 4,440

2,400 Building Beg. 26,400 26,400 Note Payable 48,000 Beg. 48,000 Rebuilding Fees Revenue 0 Beg. 18,400 (a) 18,400 Utilities Expense Beg. 0 (e) 520 520

Contributed Capital 8,600 Beg. 920 (h) 9,520 Rent Revenue 0 Beg. 820 (c) 820

Retained Earnings 10,800 Beg. (j) 2,600 8,200 Wages Expense Beg. 0 (i) 15,000 15,000

Item (f) is not a transaction; there has been no exchange.

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Chapter 03 - Operating Decisions and the Income Statement

E310. (continued) Req. 3 Net income using the accrual basis of accounting: Revenues $19,220 ($18,400 + $820) 15,520 ($15,000 + $520) Expenses Net Income $ 3,700 (accrual basis) Assets $12,520 22,800 2,400 10,520 7,200 26,400 $81,840 = Liabilities $ 7,980 4,440 48,000 + Stockholders Equity $ 9,520 8,200 3,700 net income

$60,420

$21,420

Req. 4 Net income using the cash basis of accounting: Cash receipts $27,020 (transactions a through d) Cash disbursements 18,100 (transactions g, i, and k) Net Income $ 8,920 (cash basis) Cash basis net income ($8,920) is higher than accrual basis net income ($3,700) because of the differences in the timing of recording revenues versus receipts and expenses versus disbursements between the two methods. The $7,800 higher amount in cash receipts over revenues includes cash received prior to being earned (from (b), $600) and cash received after being earned (in (d), $7,200). The $2,580 higher amount in cash disbursements over expenses includes cash paid after being incurred in the prior period (in (g), $2,140), plus cash paid for supplies to be used and expensed in the future (in (k), $960), less an expense incurred in January to be paid in February (in (e), $520).

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Chapter 03 - Operating Decisions and the Income Statement

E311. Req. 1 STACEYS PIANO REBUILDING COMPANY Income Statement (unadjusted) For the Month Ended January 31, 2011 Operating Revenues: Rebuilding fees revenue Total operating revenues Operating Expenses: Wages expense Utilities expense Total operating expenses Operating Income Other Item: Rent revenue Net Income

$ 18,400 18,400 15,000 520 15,520 2,880 820 $ 3,700

Req. 2 STACEYS PIANO REBUILDING COMPANY Statement of Stockholders Equity (unadjusted) For the Month Ended January 31, 2011 Total Stockholders Equity $19,400 920 3,700 (2,600) $21,420

Balance, December 31, 2010 Additional contributions Net income Dividends Balance, January 31, 2011

Contributed Capital $ 8,600 920

Retained Earnings $ 10,800 3,700 (2,600) $11,900

$ 9,520

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Chapter 03 - Operating Decisions and the Income Statement

E311. (continued) Req. 3 STACEYS PIANO REBUILDING COMPANY Balance Sheet (unadjusted) At January 31, 2011 Assets Current assets: Cash Accounts receivable Supplies Total current assets Equipment Land Building Total Assets Liabilities and Stockholders Equity Current liabilities: Accounts payable Unearned fee revenue Total current liabilities Note payable Total Liabilities Stockholders Equity: Contributed Capital Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity

$ 12,520 22,800 2,400 37,720 10,520 7,200 26,400 $ 81,840

7,980 4,440 12,420 48,000 60,420

9,520 11,900 21,420 $ 81,840

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Chapter 03 - Operating Decisions and the Income Statement

E312. STACEYS PIANO REBUILDING COMPANY Statement of Cash Flows For the Month Ended January 31, 2011 Operating Activities Cash received from customers (=$18,400+$600+$820+$7,200) Cash paid to employees Cash paid to suppliers (=$2,140+$960) Total cash from operating activities Investing Activities None Total cash provided by investing activities Financing Activities Dividends paid Total cash used in financing activities Increase in cash Beginning cash balance Ending cash balance

$27,020 (15,000) (3,100) 8,920 0 0 (2,600) (2,600) 6,320 6,200 $12,520

Transaction (h) is omitted from the statement of cash flows because the transaction did not involve a cash payment. However, as discussed in future chapters, this type of transaction is a noncash investing and financing activity that requires supplemental disclosure.

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Chapter 03 - Operating Decisions and the Income Statement

PROBLEMS
P34. Req. 1 and 2 Cash Beg. 0 5,640 (a) 27,600 1,430 (e) 11,000 11,000 (h) 2,675 500 (k) 155 550 (m) 2,400 1,500 130 23,080 Accounts Receivable Beg. 0 155 (k) (h) 325 Supplies Beg. 0 (d) 1,430

(b) (d) (f) (g) (i) (j) (l)

170

1,430

Inventory Beg. 0 1,200 (h) (c) 5,500 1,210 (m) 3,090 Furniture and Fixtures Beg. 0 (f) 8,250 8,250 Contributed Capital 0 Beg. 27,600 (a) 27,600 Advertising Expense Beg. 0 (g) 500 500

Prepaid Expenses Beg. 0 (b) 5,640 5,640 Accounts Payable (i) 550 0 Beg. 5,500 (c) 4,950 Sales Revenue 0 Beg. 3,000 (h) 2,400 (m) 5,400 Wage Expense Beg. 0 (j) 1,500 1,500

Equipment Beg. 0 (f) 2,750 2,750 Notes Payable 0 Beg. 11,000 (e) 11,000 Cost of Goods Sold Beg. 0 (h) 1,200 (m) 1,210 2,410 Repair Expense Beg. 0 (l) 130 130

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Chapter 03 - Operating Decisions and the Income Statement

P34. (continued) Req. 3 BRIS SWEETS Income Statement (unadjusted) For the Month Ended February 28, 2011 Revenues: Sales revenue Expenses: Cost of goods sold Advertising expense Wage expense Repair expense Total costs and expenses Net Income

$ 5,400

2,410 500 1,500 130 4,540 $ 860

BRIS SWEETS Statement of Stockholders Equity (unadjusted) For the Month Ended February 28, 2011 Total Stockholders Equity $ 0 27,600 860 (0) $28,460

Beginning, February 1, 2011 Additional contributions Net income Dividends Ending, February 28, 2011

Contributed Capital $ 0 27,600

Retained Earnings $ 0 860 (0) 860

$27,600

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Chapter 03 - Operating Decisions and the Income Statement

P34. (continued) BRIS SWEETS Balance Sheet (unadjusted) At February 28, 2011 Assets Current assets: Cash Accounts receivable Inventory Supplies Prepaid expenses Total current assets Furniture and fixtures Equipment Total Assets Liabilities and Stockholders Equity Current liabilities: Accounts payable Total current liabilities Notes payable Total Liabilities Stockholders Equity: Contributed capital Retained earnings Total Stockholders Equity Total Liabilities and Stockholders Equity Req. 4 Date: (todays date) To: Brianna Webb From: (your name) After analyzing the effects of transactions for Bris Sweets for February, the company has realized a profit of $860. This is 16% of sales revenue. However, this is based on unadjusted amounts. There are several additional expenses that will decrease the net income amount, perhaps resulting in a net loss. These include rent, supplies, depreciation, interest, and wages. Therefore, the company does not appear to be profitable, which is common for small businesses at the beginning of operations. A focus on maintaining expenses while increasing revenues should result in profit in future periods. It would also be useful to prepare a budget of cash flows each month for the upcoming year to decide how potential cash shortages will be handled.

$ 23,080 170 3,090 1,430 5,640 33,410 8,250 2,750 $ 44,410

$ 4,950 4,950 11,000 15,950 27,600 860 28,460 $ 44,410

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Chapter 03 - Operating Decisions and the Income Statement

P34. (continued) Req. 5 Total Asset = Turnover Sales Average Total Assets 2012 $82,500 =1.88 $44,000* 2013 $93,500 = 1.36 $68,750**

* ($38,500 + $49,500) 2 ** ($49,500 + $88,000) 2 The ratio for 2013 is lower than it otherwise would have been given Briannas decision to open a second store. The loans and inventory purchases required have increased the average total assets used and therefore decreased the turnover ratio. With future sales expected to grow, the ratio should increase in coming years. Based on this rationale, the manager should be promoted.

P35. BRIS SWEETS Statement of Cash Flows For the Month Ended February 28, 2011 Operating Activities Cash received from customers (=$2,675+$155+$2,400) Cash paid to employees Cash paid to suppliers (=$5,640+$1,430+$500+$550+$130) Total cash used in operating activities Investing Activities Purchased equipment Total cash used in investing activities Financing Activities Issued stock Borrowed from bank Total cash from financing activities Increase in cash Beginning cash balance Ending cash balance $ 5,230 (1,500) (8,250) (4,520) (11,000) (11,000) 27,600 11,000 38,600 23,080 0 $23,080

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Chapter 03 - Operating Decisions and the Income Statement

P36. Req. 1 and 2 Cash Beg. 360 4,598 (a) 17,600 1,348 (e) 4,824 18 (g) 16 10,031 5,348 784 673 Receivables Beg. 1,162 4,824 (e) (a) 4,567 Spare Parts, Supplies, and Fuel Beg. 294

(c) (d) (f) (h) (i) (j)

905

294 Property and Equipment (net) Beg. 8,362 (b) 1,345 9,707 Accrued Expenses Payable 1,675 Beg. 1,675 Other Noncurrent Liabilities 3,513 Beg. 3,513

Prepaid Expenses Beg. 82 (c) 1,531 1,613 Other Noncurrent Assets Beg. 1,850 1,850 Other Current Liabilities 297 Beg. 297 Contributed Capital 492 Beg. 16 (g) 508 Delivery Service Revenue 0 Beg. 22,167 (a) 22,167 Wage Expense Beg. 0 (h) 10,031 10,031

Other Current Assets Beg. 1,196 1,196 Accounts Payable 784 835 Beg. 51 Long-Term Notes Payable (f) 18 667 Beg. 1,345 (b) 1,994 Retained Earnings 5,827 Beg. 5,827 Rental Expense Beg. 0 (c) 3,067 3,067 Fuel Expense Beg. 0 (i) 5,348 5,348

(j)

Repair Expense Beg. 0 (d) 1,348 1,348 Item k does not constitute a transaction.

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Chapter 03 - Operating Decisions and the Income Statement

P36. (continued) Req. 3

FedEx
Income Statement (unadjusted) For the Year Ended May 31, 2012 (in millions) Revenues: Delivery service revenue Expenses: Rental expense Wage expense Fuel expense Repair expense Total expenses Net Income

$ 22,167 3,067 10,031 5,348 1,348 19,794 $ 2,373

FedEx
Statement of Stockholders Equity (unadjusted) For the Year Ended May 31, 2012 (in millions) Total Stockholders Equity $6,319 16 2,373 (0) $8,708

Beginning, May 31, 2011 Additional contributions Net income Dividends Ending, May 31, 2012

Contributed Capital $ 492 16

Retained Earnings $5,827 2,373 (0) $8,200

508

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Chapter 03 - Operating Decisions and the Income Statement

P36. Req. 3 (continued)

FedEx
Balance Sheet (unadjusted) At May 31, 2012 (in millions) Assets Current assets: Cash Receivables Prepaid expenses Spare parts, supplies, and fuel Other current assets Total current assets Property and equipment (net) Other noncurrent assets Total assets Liabilities and Stockholders Equity Current liabilities: Accounts payable Accrued expenses payable Other current liabilities Total current liabilities Long-term notes payable Other noncurrent liabilities Total liabilities Stockholders' Equity: Contributed capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

673 905 1,613 294 1,196 4,681 9,707 1,850 $ 16,238

51 1,675 297 2,023 1,994 3,513 7,530

508 8,200 8,708 $ 16,238

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Chapter 03 - Operating Decisions and the Income Statement

P36. Req. 3 (continued)

FedEx
Statement of Cash Flows For the Year Ended May 31, 2012 (in millions) Cash Flows from Operating Activities Cash received from customers (=$17,600+$4,824) Cash paid to employees Cash paid to suppliers (=$4,598+$1,348+$5,348+$784) Total cash provided by operating activities Cash Flows from Investing Activities None Cash Flows from Financing Activities Repayment of long-term debt Proceeds from share issuance Total cash used in financing activities Increase in cash Beginning cash balance Ending cash balance $ 22,424 (10,031) (12,078) 315 0 0 (18) 16 (2) 313 360 $ 673

Note that transaction (b) is omitted from the statement of cash flows. However, as discussed in future chapters, this type of transaction is a noncash investing and financing activity that requires supplemental disclosure.

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Chapter 03 - Operating Decisions and the Income Statement

P36. (continued) Req. 4 Total Asset Turnover = Sales (or Operating Revenues) Average Total Assets + = $22,167 = 1.50 $14,772*

* (Beginning $13,306

Ending $16,238) 2 (computed in Req. 3)

($360 + $1,162 + $294 + $82 + $1,196 + $8,362 + $1,850)

The asset turnover ratio suggests that the company obtained $1.50 in sales for the year for every $1 in assets. To analyze this result, we would need to calculate the ratio for the company over time to observe the trend in how efficiently assets are being utilized. We would also need the industry ratio for the current period to determine how the company is doing in comparison to others in the industry.

CASES AND PROJECTS

FINANCIAL REPORTING AND ANALYSIS CASES CP31. 1. The largest expense on the income statement for the year ended January 31, 2009, is the cost of sales for $1,814,765 (in thousands). As goods were sold throughout the year, cost of goods sold would be recorded and inventory would be reduced. 2. This question is intended to focus students on accounts receivable and the typical activities that increase and decrease the account. Assuming all net sales are on credit, American Eagle Outfitters collected $2,797,510,000 from customers. T-account numbers are in thousands. Accounts and Notes Receivable Beginning Sales Ending 31,920 2,988,866 41,471 2,979,315 Collections

Most retailers settle sales in cash at the register and would not have accounts receivable related to sales unless they had layaway or private credit. For American Eagle, the accounts receivable on the balance sheet primarily relates to amounts owed from landlords for their construction allowances for building new American Eagle stores in malls.

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Chapter 03 - Operating Decisions and the Income Statement

3. Over the life of the business, total earnings will equal total net cash flow. However, for any given year, the assumption that net earnings is equal to cash inflows is not valid. Accrual accounting requires recording revenues when earned and expenses when incurred, not necessarily when cash is received or paid. There may be revenues recorded as earnings that are not yet received in cash. In the same way, there may be cash outflows as prepayments of expenses that are not recorded as expenses until incurred, such as inventories, insurance, and rent. Or, there may be expenses that have been incurred for which payment will occur in the future. 4. An income statement reports the financial performance of a company over a period of time in terms of revenues, gains, expenses, and losses. A balance sheet or statement of financial position lists the economic resources owned by an entity and the claims to those resources from creditors and investors at a point in time. They are linked through retained earnings. 5. Total Asset = Turnover Sales = Average Total Assets (In thousands) $2,988,866 ($1,867,680 + $1,963,676)2

= $2,988,866 $1,915,678

1.56

The total asset turnover ratio measures the sales generated per dollar of assets. American Eagle Outfitters generated $1.56 of sales per $1 of assets.

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Chapter 03 - Operating Decisions and the Income Statement

CP3-2. 1. Urban Outfitters revenue recognition policy for retail store sales is to record revenues when customers purchase merchandise. Internet, catalog, and wholesale sales are recognized when the goods are shipped. Revenue is recognized for stored value cards and gift certificates when they are redeemed for merchandise. (See pages F-10 and F-11 of the notes to the financial statements). 2. Assuming that $50 million of cost of sales is due to distribution and occupancy costs, Urban Outfitters purchased $1,068,913 thousand worth of inventory. Inventory (in thousands) Beginning Purchases Ending 171,925 1,068,913 169,698 1,071,140 Cost of Sales*

* Total cost of sales reported $1,121,140 - an estimated $50,000 for noninventory purchase costs = $1,071,140. 3. Year ended 1/31/09 Percentage Genl., Admin. & Selling Expenses Net Sales $414,043 $1,834,618 22.6% $351,827 $1,507,724 Year ended 1/31/08 Percentage 23.3%

General, Administration, & Selling Expenses increased by 17.7% over the amount for the year ended 1/31/08.

4.

Total Asset = Turnover

Sales = $1,834,618 = $1,834,618 = 1.48 Average ($1,329,009+$1,142,791)2 $1,235,900 Total Assets

The total asset turnover ratio measures the sales generated per dollar of assets. Urban Outfitters generated $1.48 of sales per $1 of assets.

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Chapter 03 - Operating Decisions and the Income Statement

CP33. 1. American Eagle Outfitters calls its income statement the Consolidated Statements of Operations. Urban Outfitters calls its income statement the Consolidated Statements of Income. Consolidated implies that the statements of two or more companies (usually the company and its majority-owned subsidiaries) have been combined into a single statement for presentation. 2. Urban Outfitters had the higher net income of $199,364 for the year ended January 31, 2009, compared to American Eagle Outfitters net income of $179,061 for the same year (all dollars in thousands). American Eagle reported a $22,889 impairment charge in the most recent year that reduced net income. Urban Outfitters did not report any impairment charge. If the charge were not included, American Eagle would have reported $201,950 in net income, higher than Urban Outfitters. 3. (in thousands) Total Asset = Sales Turnover Average Total Assets American Eagle Outfitters $2,988,866 =1.56 $1,915,678* Urban Outfitters $1,834,618 = 1.48 $1,235,900**

* ($1,867,680 + $1,963,676)2 ** ($1,329,009+$1,142,791)2 American Eagle Outfitters has the higher asset turnover ratio, 1.56 compared to Urban Outfitters of 1.47, suggesting that Urban Outfitters is utilizing its assets less effectively to generate sales than is American Eagle Outfitters. However, the difference is not very large. 4. Asset Turnover = Industry Average 1.90 American Eagle Outfitters 1.56 Urban Outfitters 1.48

Both American Eagle Outfitters and Urban Outfitters are utilizing their assets to generate sales less effectively than the average company in their industry. Companies that are expanding will have higher asset values that may not as of yet have generated sales. 5. 2009 Operating cash flows $302,193 2008 $464,270 American Eagle Outfitters Percentage Change 2008 2007 (34.91%) $464,270 $749,268 Percentage Change (38.04%)

2009 Operating cash flows

2008

Urban Outfitters Percentage Change 2008 (1.09%)

2007

Percentage Change 35.93%

$251,570 $254,353

$254,353 $187,117

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