a.Compute the 2017 return on assets (ROA) for both companies.b.Disaggregate ROA into profit margin (PM) and asset turnover (AT) for each company. Confirm that ROA = PM x AT.c.Discuss differences observed with respect to PM and AT and interpret these differences in light of each company’s business model. Selected balance sheet and income statement information from Urban Outfitters, Inc. and TJXCompanies, clothing retailers in the high-end and value-priced segments, respectively, follows.2017 Earnings2017Without Interest2017 Total2016 TotalCompany ($ millions)SalesExpense (EWI)AssetsAssets$ 1082,653$ 1,903$ 3,61635,865$ 1,95314,058Urban OutfittersTJX Companies12,884

Answered: Image /qna-images/answer/b1f27ff0-e6f9-4392-b7f1-8d523c4833f3.jpgTJX Companies has considerably higher ROA which is due to its’ having higher Asset Turnover. Higher Asset Turnover can enhance Profit Margin in terms of ROA. With TJX having slightly higher Profit Margin, the ROA of TJX gets exaggerated due to its higher Asset Turnover. This highlights the strategy of TJX Companies of maximizing ROA through maximizing Profit Margin.

Answered: a.Compute the 2017 return on assets…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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a.Compute the 2017 return on assets (ROA) for both companies.

b.Disaggregate ROA into profit margin (PM) and asset turnover (AT) for each company. Confirm that ROA = PM x AT.

c.Discuss differences observed with respect to PM and AT and interpret these differences in light of each company’s business model.

Selected balance sheet and income statement information from Urban Outfitters, Inc. and TJX
Companies, clothing retailers in the high-end and value-priced segments, respectively, follows.
2017 Earnings
2017
Without Interest
2017 Total
2016 Total
Company ($ millions)
Sales
Expense (EWI)
Assets
Assets
$ 108
2,653
$ 1,903
$ 3,616
35,865
$ 1,953
14,058
Urban Outfitters
TJX Companies
12,884

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