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 Price Per share Number of Shares
​1,291 $26.35 67.59 million
GPS 2,545 $24.74 397.14 million
What is the​ market-to-book ratio of each​ company?
The​ market-to-book ratio for ANF is_____

Answer 1

The market-to-book ratio for Abercrombie & Fitch (ANF) is 1.38, calculated by dividing the market value of equity ($1,781.53 million) by the book value of equity ($1,291 million).

Step-by-step explanation:

To calculate the market-to-book ratio for Abercrombie & Fitch (ANF) and The Gap (GPS), we first find the market value of equity by multiplying the price per share by the number of shares. Then, we divide this market value by the book value (equity).

• ANF: Market Value = $26.35 × 67.59 million = $1,781.53 million
• Market-to-Book Ratio for ANF = Market Value / Book Value = $1,781.53 / $1,291 = 1.38
• GPS: Market Value = $24.74 × 397.14 million = $9,826.18 million
• Market-to-Book Ratio for GPS = Market Value / Book Value = $9,826.18 / $2,545 = 3.86

The market-to-book ratio is a valuation metric comparing the market value of a company's shares to its book value of equity. A higher ratio indicates the market values the company more than its book value.