Question

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 $17,713 $18,402 $11,892 $10,378

Net sales 50,348 30,480

Net income 1,297 1,175

Using the data above, answer the following questions.

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 2.6% 3.85%

Asset Turnover 2.79 times ? times

Return on Assets ? % ? %

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 x Asset Turnover = Return on Assets

2012 3.85% ? ?   %

2017   2.6% 2.79 7.254

Answer 1

	2017	2016	2012	2011
assets	17713	18402	11892	10378
net sales	50348		30480
net income	1297		1175
profit margin [net income/sales]	2.60%[1297/50348]		3.85%
Asset turnover [net sales/ average total assets]	2.79[50348/18057.5]		2.74[30480/11135]
average asset	18057.5[17713+18402]/2		11135[11892+10378]/2
return on assets [ net income/average total asset]	7.2%[1297/18057.5]		10.6%[1175/11135]
return on asset	7.254[2.6*2.79]		10.549[3.85*2.74]