Question

Expand Your Critical Thinking 7-3 The March 29, 2012, edition of the Wall Street Journal Online contains an article by Miguel Bustillo entitled, “Best Buy Forced to Rethink Big Box.” The article explains how the 1,100 giant stores, which enabled Best Buy to obtain its position as the largest retailer of electronics, are now reducing the company’s profitability and even threatening its survival. The problem is that many customers go to Best Buy stores to see items but then buy them for less from online retailers. As a result, Best Buy recently announced that it would close 50 stores and switch to smaller stores. However, some analysts think that these changes are not big enough. Suppose the following data were extracted from the 2017 and 2012 annual reports of Best Buy. (All amounts are in millions.) 2017 2016 2012 2011 Total assets at year-end $17,825 $18,342 $11,688 $10,258 Net sales 50,324 30,800 Net income 1,261 1,163 Using the data above, answer the following questions.

Your answer is partially correct. Try again. Compute the profit margin, asset turnover, and return on assets for 2017 and 2012. (Round all percentages to 1 decimal places, e.g. 15.1% and asset turnover ratio to 2 decimal places, e.g. 15.21.) 2017 2012 Profit Margin % % Asset Turnover times times Return on Assets % %

Your answer is incorrect. Try again. Present the ratios calculated above in the equation format. (Round asset turnover ratio to 2 decimal places, e.g. 15.21 and all other answers to 1 decimal places, e.g. 15.1%.) Profit Margin × Asset Turnover = Return on Assets 2012 % × = % 2017 % × = % Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer:

Profit Margin = (Net Income / Net Sales) * 100

Profit Margin (2012) = ($1,163 / $30,800) * 100 = 3.8%

Profit Margin (2017) = ($1,261 / $50,324) * 100 = 2.5%

Asset Turnover = Net Sales / Average total assets

Average total assets = (Opening assets balance + Closing assets balance) / 2

Average total assets (2012) = ($10,258 + $11,688) / 2 = $10,973

Average total assets (2017) = ($18,342 + 17,825) / 2 = $18,083.5

Asset Turnover (2012) = $30,800 / $10,973 = 2.8 times

Asset Turnover (2017) = $50,324 / $18,083.5 = 2.78 times

Return on assets = (Net Income / Average total assets) * 100

Return on assets (2012) = ($1,163 / $10,973) * 100 = 10.6%

Return on assets (2017) = ($1,261 / $18,083.5) * 100 = 7.0%

	2017	2012
Profit Margin	2.5%	3.8%
Asset Turnover	2.78 times	2.8 times
Return on Assets	7.0%	10.6%

(Note: Decimals are rounded off as stated above)