ny has been unable to match Jones Apparel Groups use of borrowed funds. As will become evident soon, Jones business philosophy has lead to higher assets-to-equity ratios in the past three years, leaving Liz behind. Return on equity (ROE) is the culmination of the three previously discussed attributes of a company (Profitability x Efficiency x Leverage). It is described as the single measure that summarizes the financial health of a company. Jones has posted some large ROE numbers in the past five years, most notable, 27.94 percent at year ended 1997 and 26.06 percent at year ended 1998. Liz has lagged behind posting a high of 22.13 percent at year ended 2000. Once again the nature of the apparel industry must be taken into consideration here. Many investors are dissuaded from investing in apparel manufacturers because of the fluctuations experienced by these types of companies. Consumers take trends quite seriously, and if one companys prediction of the fabric of choice for Fall 2000 was better than anothers, the numbers will most definitely reflect the difference. While Jones Apparel Group has shown higher ROE numbers over the past five years, Liz Claiborne has shown investors a better return in the past two years. Lizs year ended ROE for 1999 (1/1/00) and 2000 were 20.46 percent and 22.13 percent respectively. Jones ROEs for the same relative time periods were much less impressive: 15.18 percent and 20.44 percent respectively. While Jones may hold a historic comparative advantage, Liz has posted some high numbers as of late in an attempt to shift that advantage. An important consideration is that ROEs for Fortune 500 companies average between fourteen and fifteen percent. Jones and Lizs lowest ROEs in the past five years fall above that average: 15.18 percent and 15.25 percent respectively.II. Common-size Income Statements (1998-2000)The common-size income statement can make comparing companies an easier task. These tab...
