Question

Use the following tables to complete the critical thinking assignment.

Best Buy Co., Inc.

Income Statement

	2/3/2018	1/28/2017	1/30/2016	1/31/2015
Revenue
Total Revenue	42,151,000	39,403,000	39,528,000	40,339,000
Cost of Revenue	32,275,000	29,963,000	30,334,000	31,292,000
Gross Profit	9,876,000	9,440,000	9,194,000	9,047,000
Operating Expenses
Selling General and Administrative	7,911,000	7,493,000	7,612,000	7,550,000
Operating Income or Loss	1,965,000	1,947,000	1,582,000	1,497,000
Income from Continuing Operations
Add Total Other Income/Expenses Net	-148,000	-131,000	-272,000	-110,000
Interest Expense	75,000	72,000	80,000	90,000
Income Before Tax	1,742,000	1,744,000	1,230,000	1,297,000
Income Tax Expense	818,000	609,000	503,000	141,000
Add Discontinued Operations	1,000	21,000	90,000	-13,000
Net Income	925,000	1,156,000	817,000	1,143,000

Best Buy Co., Inc.

Balance Sheet

	2/3/2018	1/28/2017	1/30/2016	1/31/2015
Current Assets
Cash And Cash Equivalents	1,101,000	2,240,000	1,976,000	2,432,000
Short Term Investments	2,196,000	1,848,000	1,384,000	1,539,000
Net Receivables	1,049,000	1,347,000	1,162,000	1,280,000
Inventory	5,209,000	4,864,000	5,051,000	5,174,000
Other Current Assets	274,000	217,000	313,000	1,047,000
Total Current Assets	9,829,000	10,516,000	9,886,000	11,472,000
Long Term Investments	0	13,000	27,000	3,000
Property Plant and Equipment	2,421,000	2,293,000	2,346,000	2,295,000
Goodwill	425,000	425,000	425,000	425,000
Intangible Assets	18,000	18,000	18,000	57,000
Other Assets	356,000	591,000	817,000	993,000
Deferred Long Term Asset Charges	159,000	317,000	510,000	574,000
Total Assets	13,049,000	13,856,000	13,519,000	15,245,000
Current Liabilities
Accounts Payable	4,873,000	4,984,000	4,450,000	5,030,000
Short/Current Long Term Debt	499,000	0	350,000	0
Other Current Liabilities	1,043,000	944,000	975,000	1,609,000
Total Current Liabilities	7,817,000	7,122,000	6,925,000	7,777,000
Long Term Debt	648,000	1,158,000	1,168,000	1,492,000
Other Liabilities	805,000	704,000	877,000	901,000
Total Liabilities	9,437,000	9,147,000	9,141,000	10,250,000
Stockholders' Equity
Total Stockholder Equity	3,612,000	4,709,000	4,378,000	4,995,000

Using the attached financial statements for Best Buy Co., Inc. complete the financial statement analysis and ratio analysis by answering the questions below. a. Calculate average collection period, total asset turnover, inventory turnover, and days in inventory. b. Assess the activity of the firm, using your calculations in part a, over the four year period. c. Calculate the gross profit margin, operating margin, and net profit margin. d. Assess the profitability of the firm, using your calculations in part c, over the four year period.

Answer 1

a]

average collection period = (365 * net receivables) / revenue

2018 = (365 * 1,049,000) / 42,151,000 = 9.08 days

2017 = (365 * 1,347,000) / 39,403,000 = 12.48 days

2016 = (365 * 1,162,000) / 39,528,000 = 10.73 days

2015 = (365 * 1,280,000) / 40,339,000 = 11.58 days

total asset turnover = revenue / total assets

2018 = 42,151,000 / 13,049,000 = 3.23

2017 = 39,403,000 / 13,856,000 = 2.84

2016 = 39,528,000 / 13,519,000 = 2.92

2015 = 40,339,000 / 15,245,000 = 2.65

inventory turnover = COGS / inventory

2018 = 32,275,000 / 5,209,000 = 6.20 times

2017 = 29,963,000 / 4,864,000 = 6.16 times

2016 = 30,334,000 / 5,051,000 = 6.01 times

2015 = 31,292,000 / 5,174,000 = 6.05 times

days in inventory = 365 / inventory turnover

2018 = 365 / 6.20 = 59 days

2017 = 365 / 6.16 times = 59 days

2016 = 365 / 6.01 times = 61 days

2015 = 365 / 6.05 = 60 days

b]

The average collection period has decreased, the total asset turnover has increased, days in inventory has decreased and the inventory turnover has increased over the past years. These are all indicative of more activity.

c]

gross profit margin = gross profit / revenue

2018 = 9,876,000 / 42,151,000 = 23.43%

2017 = 9,440,000 / 39,403,000 = 23.96%

2016 = 9,194,000 / 39,528,000 = 23.26%

2015 = 9,047,000 / 40,339,000 = 22.43%

net profit margin = net income / revenue

2018 = 925,000 / 42,151,000 = 2.19%

2017 = 1,156,000 / 39,403,000 = 2.93%

2016 = 817,000 / 39,528,000 = 2.07%

2015 = 1,143,000 / 40,339,000 = 2.83%

d]

The gross profit margin has been increasing over the past years

However, the net profit margin has been decreasing over the past years