Comparing Abercrombie & Fitch and TJX Companies Following are selected financial statement data from Abercrombie &...

Comparing Abercrombie & Fitch and TJX Companies
Following are selected financial statement data from Abercrombie & Fitch (ANF-upscale clothing retailer) and TJX Companies (TJX-value-priced clothing retailer including TJ Maxx) -- both dated the end of January 2008 or 2007.

($ millions)	Company	Total Assets	Net Income	Sales
2007	TJX Companies Inc.	$6,086
2008	TJX Companies Inc.	6,600	$ 772	$18,647
2007	Abercrombie & Fitch	2,248
2008	Abercrombie & Fitch	2,568	476	3,750

(a) Compute the return on assets for both companies for the year ended January 2008

(b) Disaggregate the ROAs for both companies into the profit margin and asset turnover.

(c) Which of the following is a likely interpretation of the results of your computations for parts a and b?

ANF turns its assets much faster than TJX and this is the primary reason for its higher return on assets.

ANF is realizing a higher return on assets as a result of its lower investment in assets.

ANF's profit margin more than offsets its lower asset turnover, thus generating higher returns on assets.

ANF's higher return on assets is the result of its greater level of sale

Expert Solution

Solution a:

Return on Assets - Original Formula
Particulars	Choose Numerator	/	Choose denomerator	=	Return on Assets
Formula	Net Income	/	Average Total Assets	=	Return on Assets

TJX Companies Inc	$772.00	/	$6,343.00	=	12.17%
Abercrombie & Fitch	$476.00	/	$2,408.00	=	19.77%

Solution b:

Profit Margin	Profit Margin
Division	Choose Numerator	/	Choose denomerator	=	Profit Margin
Details	Amount	Details	Amount
TJX Companies Inc	Net income	$772.00	/	Sales	$18,647.00	=	4.14%
Abercrombie & Fitch	Net income	$476.00	/	Sales	$3,750.00	=	12.69%

Asset Turnover	Turnover
Division	Choose Numerator	/	Choose denomerator	=	Asset Turnover
Details	Amount	Details	Amount
TJX Companies Inc	Sales	$18,647.00	/	Average Total assets	$6,343.00	=	2.94
Abercrombie & Fitch	Sales	$3,750.00	/	Average Total assets	$2,408.00	=	1.56

Solution c:

The most likely interpretation of the results for computation in Part a and b is "ANF's profit margin more than offsets its lower asset turnover, thus generating higher returns on assets."

Hence 3rd option is correct.

ekkarill92 answered 2 years ago

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