Introduction
The paper seeks to carry out a comparison of the financial health of the two companies. The analysis will focus on risks, capital structure, changes in the reported balances over time, and profitability.
Risks
The first risk factor for American Eagle Outfitters is the inability to respond swiftly to changes in consumers’ tastes and preferences. Secondly, the constant change in the economic conditions and the business environment affect consumer spending. Finally, fluctuations in the cost of raw materials and other factors of production affect the cost of sales of the company. On the other hand, the main risk factor for Buckle Inc. is the inability to measure the tastes and preferences of the consumers. This creates uncertainty in operations. Secondly, the company depends on Private Label Merchandise as the major source of revenue. Thirdly, the investments made by the company are exposed to market and liquidity risks. This creates uncertainty in the expected revenue from investments.
Capital structure
The two companies do not have debt in their capital structure. All of their operations are financed through equity.
Changes in the reported balances over time
American Eagle Outfitters reported an increase in the value of total assets and liabilities between 2008 and 2009. In 2010, the company had declined and recovered in 2012. The same trend was observed in the income statement. On the other hand, Buckle Inc. reported growth in the values reported both in the income statement and balance sheet between 2008 and 2012. However, the size of financial statements for American Eagle Outfitters is larger than for Buckle Inc.
Profitability
The gross profit margin of American Eagle Outfitters fluctuated over the period. The value declined from 39.28% in 2008 to 35.71% in 2011. However, in 2012, the company reported an increase in the value of the margin to 40%. On the other hand, the gross profit margin for Buckle Inc. increased from 43.4% in 2008 to 44.4% in 2012. Further, the net profit margin for American Eagle Outfitters declined from 5.99% in 2008 to 4.8% in 2011. However, in 2012, the value of the margin increased to 6.68%. The net profit margin for Buckle Inc. increased from 13.18% in 2009 to 14.62% in 2012. The return on assets for American Eagle Outfitters declined from 9.35% in 2008 to 7% in 2010. The ratio increased to 7.92% in 2011 and further to 12.52% in 2012. The return on assets for Buckle Inc. increased from 22.8% in 2009 to 32.55% in 2012. Further, the return on equity for American Eagle Outfitters declined from 13.03% in 2008 to 9.6% in 2010. The ratio increased to 10.96% in 2011 and further to 17.6% in 2012. The return on equity for Buckle Inc. increased from 30.91% in 2009 to 50.34% in 2012. Also, the asset turnover for American Eagle Outfitters declined from 1.56 in 2008 to 1.48 in 2010. The ratio increased to 1.65 in 2011 and further to 1.88% in 2012. The asset turnover for Buckle Inc. increased from 1.73 in 2009 to 2.23 in 2012. Finally, the price-earnings ratio for American Eagle Outfitters increased from 6.8 in 2008 to 26.7 in 2010. The value declined to 16 in 2011. Thereafter, it increased to 19.8 in 2012. The price-earnings ratio for Buckle Inc. increased from 10.2 in 2009 to 13.4 in 2012
The profitability of Buckle Inc. is higher, increasing, and more stable than the profitability of American Eagle Outfitters. Besides, the balances for Buckle Inc. are growing. Therefore, the investor should select Buckle Inc. because it is less volatile.