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CASE 8-6 RETURN ON ASSETS – INDUSTRY COMPARISON
Assets.)
a. Johnson & Johnson
1.
Net Profit Margin
=
Net Income Before Noncontrolling Interest
Equity Income and Nonrecurring Items
Net Sales
$13,334
=
21.65%
$61,587
2.
Total Asset Turnover
=
Net Sales
Average Total Assets
$61,587
=
.62 Times
($102,908 + $94,682)/2
3.
Return on Assets
=
Net Income Before Noncontrolling
Interest and Nonrecurring Items
Average Total Assets
$13,334
=
13.50%
($102,908 + $94,682)/2
b. Best Buy, Co.
1.
Net Profit Margin
=
Net Income Before Noncontrolling Interest
Equity Income and Nonrecurring Items
Net Sales
$1,277 – $2
=
2.54%
$50,272
2.
Total Asset Turnover
=
Net Sales
Average Total Assets
$50,372
=
2.78 Times
$17,849 + $18,302
269
3.
Return on Assets
=
Net Income Before Noncontrolling
Interest and Nonrecurring Items
Average Total Assets
$1,277 – $2
=
7.05%
($17,849 + $18,302 + $18,075.5)
c. Johnson & Johnson is in the health care field. This influenced the high Net Profit
Margin and low Total Asset Turnover.
Co. This does not directly relate to the industry (Best Buy could have been higher).
CASE 8-7 NAME THE INDUSTRY
a. Firm A Costco
The low Profit Margin and high Total Asset Turnover makes Firm A Costco. The low
Current Ratio also points to Costco.
b. Firm B Apple
Current Ratio also points to Apple.
c. Firm C Target Corporation
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CASE 8-8 SPECIALTY RETAILER – PROFITABILITY
firms in the same industry.)
Brands in 2009.
The trend was good for all three companies.
b. Return on Assets
Return on Assets increased materially in 2010 for all three companies.
c. Return on Total Equity
In 2010, the Return on Total Equity increased for all three companies with
1. Limited Brands
2. GAP
3. Abercrombie & Fitch
For the period reviewed, Abercrombie & Fitch had the lowed profit indicators.
CASE 8-9 – EAT AT MY RESTAURANT – PROFITABILITY
(This case provides the opportunity to compare three profitability ratios among three
firms in the same industry.)
a. Net Profit Margin
The net profit margin was the best for Yum Brands. Starbucks had a very material
271
b. Return on Assets
c. Return on Total Equity
Return on Total Equity was very, very high for Yum Brands. Not shown in the case
Total Equity.
CASE 8-10 – EAT AT MY RESTAURANT – PROFITABILITY VIEW (Comprehensive
Income Included)
a. Net Profit Margin
Yum Brands appears to have the better Net Profit Margin.
b. Return on Assets
the highest in each year.
c. Return on Total Equity
d. 1. Yum Brands
Comprehensive
Income
Case 8-9
Case 8-10
2010
2009
2010
2009
Net profit margin %
10.21
9.88
10.18
11.67
Return on assets %
14.98
15.66
14.94
18.50
Return on total equity %
84.66
210.00
83.00
248.04
Comprehensive Income ratios were materially higher in 2009, a slight negative
influence in 2010.
272
The ratios fluctuated materially more under Comprehensive Income.
Panera Bread
Comprehensive
Income
Case 8-9
Case 8-10
2010
2009
2010
2009
Net profit margin %
7.25
6.36
7.26
6.40
Return on assets %
12.70
11.39
12.71
11.47
Return on total equity %
18.71
15.71
18.72
15.82
The ratios fluctuated slightly more under Comprehensive Income.
Starbucks
Comprehensive
Income
Case 8-9
Case 8-10
2010
2009
2010
2009
Net profit margin %
8.83
4.00
8.75
4.17
Return on assets %
15.81
6.95
15.67
7.25
Return on total equity %
28.14
14.11
27.90
14.73
2009.
The ratios fluctuated slightly more under Comprehensive Income.
2. No, the changes in Comprehensive Income can fluctuate materially.