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Compute ROA, Profit Margin and Asset Turnover for Competitors Selected balance sheet and income statement information from Ur
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Answer #1
A) Compute the 2014 return on assets (ROA ) for both companies :
Urban Outfitters 11.30%
TJX Companies 21.00%
B) Disaggregate ROA into profit margin ( PM ) and asset turnover (AT) for each company :
PM    * AT = ROA
Urban Outfitters 7.00%    * $ 1.617 = 11.30%
TJX Companies 7.70%    * $ 2.727 = 21%
EXPLANATION :
Return on assets = Net income / Average Total assets
Here Net income = Earnings without interest expense
Average Total assets = (Beginning total assets + Ending total assets)/ 2
Urban Outfitters = ($ 2,221 + $1,889)/ 2 = $ 2,055
TJX Companies= ($ 10,201 +$ 11,128 ) / 2 = $ 10,664.5
Urban Outfitters.
Return on assets = Net income / Average Total assets
Return on assets = $ 232.4 / $ 2,055  
Return on assets = 11.3 % ( rounded to 1 decimal )
TJX Companies
Return on assets = Net income / Average Total assets
Return on assets = $ 2,241 / $ 10,664.5
Return on assets = 21.0 % ( rounded to 1 decimal )
1 B)
Urban Outfitters
profit margin ( PM )= Net income / Net sales
Profit margin ( PM )= $ 232.4 / $ 3,323
Profit margin ( PM )= 7.0 % ( rounded to 1 decimal )
Asset turnover (AT)= Net sales / Average total assets
Average Total assets = (Beginning total assets + Ending total assets)/ 2
Urban Outfitters = ($ 2,221 + $1,889)/ 2 = $ 2,055
Asset turnover (AT)= $ 3,323 / $ 2,055
Asset turnover (AT)= $ 1.617 ( rounded to 3 decimal )
TJX Companies
profit margin ( PM )= Net income / Net sales
Profit margin ( PM )= $ 2,241 / $ 29,078
Profit margin ( PM )= 7.7 % ( rounded to 1 decimal )
Asset turnover (AT)= Net sales / Average total assets
Average Total assets = (Beginning total assets + Ending total assets)/ 2
TJX Companies= ($ 10,201 +$ 11,128 ) / 2 = $ 10,664.5
Asset turnover (AT)= $ 29,078 / $ 10,664.5
Asset turnover (AT)= $ 2.727 ( rounded to 3 decimal )
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