Question

PLEASE POST EXCEL SPREADSHEET

1. Please show all computation and underline your final answer in your submission.

Below are several financial statement items for fiscal year 2016 for two grocery chains, Whole Foods Market, an upscale organic grocer, and The Kroger Co. a mainstream grocer. ($ millions)

($ millions)	Whole Foods Market	The Kroger Co.
Net income	$     507	$    1,957
Sales	15,724	115,337
Average assets	6,041	35,201
Average stockholders’ equity	3,497	6,754

Calculate each company’s return on assets (ROA) and return on equity (ROE). Comment on any differences you observe.

Disaggregate the ROA for each company into profit margin (PM) and asset turnover (AT). Explain why Whole Foods has a higher ROA, is it because of PM or AT or both?

Answer 1

	$ millions)	Whole Foods Market	The Kroger Co.
i	Net income	507	1,957
ii	Sales	15,724	115,337
iii	Average assets	6,041	35,201
iv	Average stockholders’ equity	3,497	6,754
answer a =i/iii	ROA = Net income/Average asset	8.39%	5.56%
answer b =i/iv	ROE = Net income/Average equity	14.50%	28.98%
ans -c	we can see that whole food has higher ROA but lower ROE. Kroger co is able to make more share holder wealth compared to Whole food
	Kroger is better company from share holder point of view
ans -d	ROA disaggregation
	ROA = Net income/Total asset = (Net income/Sales) *(Sales/Total asset)= Profit margin* Asset turnover
	Profit margin =i/ii	3.2%	1.7%
	Asset turnover = ii/iii	2.60	3.28
	ROA for Whole food is higher due to higher profit margin . Asset turnover is lower compared to Kroger