IDEAS home Printed from https://ideas.repec.org/p/wes/weswpa/2024-005.html
   My bibliography  Save this paper

A Case of Financial Ratios That Can Inadvertently Mislead

Author

Listed:
  • Martin Gosman

    (Department of Economics, Wesleyan University)

  • Mathius Gazi

    (Department of Economics, Wesleyan University)

  • Akiva Lind

    (Department of Economics, Wesleyan University)

Abstract

In this case, a new investment group selects Burlington Stores as the off-price retailer to include in its stock portfolio, impressed with Burlington’s reporting of a much higher gross-profit percentage than that of its peers and the firm’s 443% return on stockholders’ equity (ROE), fifth highest among the Fortune 500. After observing one year later that Burlington’s stock performance was similar to that of its peers, Ross Stores and TJX, the group considers the factors that could have falsely suggested superior earning power on behalf of Burlington. In the process, they come to realize the challenges that can exist when comparing firms on the basis of their gross-profit percentages and returns on stockholders’ equity. In a teaching note that follows, questions enable students to revisit key points raised in the case as they examine financial-statement disclosures for fourteen additional retailers.

Suggested Citation

  • Martin Gosman & Mathius Gazi & Akiva Lind, 2024. "A Case of Financial Ratios That Can Inadvertently Mislead," Wesleyan Economics Working Papers 2024-005, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2024-005
    as

    Download full text from publisher

    File URL: http://repec.wesleyan.edu/pdf/mgosman/2024005_gosman.pdf
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wes:weswpa:2024-005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manolis Kaparakis (email available below). General contact details of provider: https://edirc.repec.org/data/edwesus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.