Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 80

Evaluating Financial Information
Lumber Liquidators, Inc., competes with Lowe's in product lines such as hardwood flooring, moldings, and noise-reducing underlay. The two companies reported the following financial results in fiscal 2010:

Required:
1. Explain how Lowe's could have a higher gross profit percentage than Lumber Liquidators but a nearly identical net profit margin. What does this suggest about the relative ability of the two companies to control operating expenses
2. Explain how Lumber Liquidators could have a higher return on equity but lower earnings per share. What does this suggest about the companies' relative number of outstanding shares What other explanations could account for this seemingly contradictory pattern