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Comparing Ratios for Luxury and Budget Retailers Following are selected financial statement data from Capri Holdings (a retailer that owns upscale brands Michael Kors, Jimmy Choo, and Versace) and Five Below (a value-priced toy and novelty retailer). Capri Holdings ($ millions) Five Below ($ thousands) 2018 2017 2018 2017 Sales $4,624.2 $4,403.8 $1,528,372 $1,252,644 Cost of sales 1,747.7 1,722.4 934,809 765,907 Net income 556.6 518.4 140,666 96,304 Average equity 1,768.9 1,758.1 526,089 387,082 Required a. Calculate the gross profit for each company for both years. Gross profit is equal to sales minus the cost of sales. b. Calculate gross profit as a percentage of sales for each company for both years. c. Compute the return on equity for each company for both years.

Notes: For gross profit, enter Capri Holdings in millions and Five Below in thousands. Round gross profit percentage and ROE to one decimal place (example: 0.2345 = 23.5%).

	Capri Holdings		Five Below
	2018	2017	2018	2017
a. Gross profit	Answer	Answer	Answer	Answer
b. Gross profit percentage	Answer	Answer	Answer	Answer
c. Return on equity (ROE)	Answer	Answer	Answer	Answer

d. Which of the following best explains why the ratios for Five Below and Capri Holdings differ? Select the corresponding number for the correct answer: Answer1.2.3.4.

1. Capri Holdings is much larger than Five Below and so its ratios are naturally larger.
2. Five Below is a younger company and so its ratios are naturally lower.
3. Capri Holdings brand recognition creates a competitive advantage, which allows the company to add a bigger markup to the products it sells.
4. Five Below imports its products from Southeast Asia, which allows the company to keep product costs down.

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