Question

Financial information for American Eagle Outfitters, Inc. is presented in Appendix A. Calculate the following risk ratios for the year ended February 3, 2018. (Use 365 days a year. Round your intermediate calculations and final answers to 1 decimal place.)

a. Current Ratio
b. Quick Ratio
c. Debt-to-Equity Ratio
d. Return on Equity (ROE)

Answer 1

This answer explains how to calculate the current ratio, quick ratio, debt-to-equity ratio, and return on equity (ROE) using the financial information provided for American Eagle Outfitters, Inc. The calculations are broken down step by step.

Step-by-step explanation:

a. Current Ratio:
Current Ratio is a financial ratio that measures a company's ability to pay off its short-term liabilities with its current assets. It is calculated by dividing current assets by current liabilities. Using the financial information provided in Appendix A, we can calculate the Current Ratio as follows:

1. Identify the current assets and current liabilities from the financial information in Appendix A.
2. Divide the total current assets by the total current liabilities.
3. Round the result to one decimal place.

b. Quick Ratio:
Quick Ratio, also known as Acid-Test Ratio, is a financial ratio that measures a company's ability to pay off its short-term liabilities with its quick assets, which are current assets excluding inventory. It is calculated by dividing quick assets by current liabilities. Using the financial information provided in Appendix A, we can calculate the Quick Ratio as follows:

1. Identify the quick assets and current liabilities from the financial information in Appendix A.
2. Divide the total quick assets by the total current liabilities.
3. Round the result to one decimal place.

c. Debt-to-Equity Ratio:
Debt-to-Equity Ratio is a financial ratio that compares a company's total debt to its total equity. It is calculated by dividing total debt by total equity. Using the financial information provided in Appendix A, we can calculate the Debt-to-Equity Ratio as follows:

1. Identify the total debt and total equity from the financial information in Appendix A.
2. Divide the total debt by the total equity.
3. Round the result to one decimal place.

d. Return on Equity (ROE):
Return on Equity is a financial ratio that measures a company's profitability by showing how effectively it generates profits from the equity invested by shareholders. It is calculated by dividing net income by average equity. Using the financial information provided in Appendix A, we can calculate the Return on Equity as follows:

1. Identify the net income and average equity from the financial information in Appendix A.
2. Divide the net income by the average equity.
3. Round the result to one decimal place and multiply by 100 to express it as a percentage.