This exercise is built around Kroger’s financial statements from the chapter. Total shareholders' equity—The Kroger Co. was $5,384 million at February 1, 2014. Refer to Exhibits 6.1, 6.6 and 6.14 from the chapter. Required: Kroger earned an ROA of 6.9% in fiscal 2014. What was ROCE that year? (Round your answer to 1 decimal place.) ROA at the company fell to 3.7% in fiscal 2017 (adjusted to eliminate the one-time effect on earnings of the Tax Cuts and Jobs Act). What was ROCE that year (also adjusted for the Tax Cuts and Jobs Act)? (Round your answer to 1 decimal place.) Did financial leverage help or hurt Kroger in fiscal 2017? 1. ROCE 2014 % 2. ROCE 2017 % 3. Did financial leverage help or hurt Kroger in fiscal 2017? Help or Hurt
This exercise is built around Kroger’s financial statements from the chapter. Total shareholders' equity—The Kroger Co. was $5,384 million at February 1, 2014. Refer to Exhibits 6.1, 6.6 and 6.14 from the chapter. Required: Kroger earned an ROA of 6.9% in fiscal 2014. What was ROCE that year? (Round your answer to 1 decimal place.) ROA at the company fell to 3.7% in fiscal 2017 (adjusted to eliminate the one-time effect on earnings of the Tax Cuts and Jobs Act). What was ROCE that year (also adjusted for the Tax Cuts and Jobs Act)? (Round your answer to 1 decimal place.) Did financial leverage help or hurt Kroger in fiscal 2017? 1. ROCE 2014 % 2. ROCE 2017 % 3. Did financial leverage help or hurt Kroger in fiscal 2017? Help or Hurt
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
This exercise is built around Kroger’s financial statements from the chapter. Total shareholders' equity—The Kroger Co. was $5,384 million at February 1, 2014. Refer to Exhibits 6.1, 6.6 and 6.14 from the chapter.
Required:
- Kroger earned an ROA of 6.9% in fiscal 2014. What was ROCE that year? (Round your answer to 1 decimal place.)
- ROA at the company fell to 3.7% in fiscal 2017 (adjusted to eliminate the one-time effect on earnings of the Tax Cuts and Jobs Act). What was ROCE that year (also adjusted for the Tax Cuts and Jobs Act)? (Round your answer to 1 decimal place.)
- Did financial leverage help or hurt Kroger in fiscal 2017?
|
The solution provided here is incorrect on both ROCE 2014 and 2017
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Transcribed Image Text:EXHIBIT 6.1 The Kroger Co.
Comparative Income Statements
Fiscal Year:
($ in
millions)
Sales
Year Ended:
Merchandise costs, including
advertising, warehousing, and
transportation, excluding items
shown separately below
Operating, general and administrative
Rent
Depreciation and amortization
Operating profit
Interest expense
Net earnings before income tax
(benefit) expense
Provision for income taxes
Net earnings including
noncontrolling interests
Net earnings (loss) attributable to
noncontrolling interests
Net earnings attributable to The
Kroger Co.
Source: The Kroger Company Form 10-Ks for the
years presented.
EXHIBIT 6.14 The Kroger Co.
Return on Assets
2017
(52 weeks)
February 3,
2018
$ 122,662
$
95,662
21,568
911
2,436
2,085
601
1,484
(405)
1,889
(18)
1,907
2016
2015
2014
(53 weeks) (52 weeks) (52 weeks)
January
28, 2017
January
30, 2016
January
31, 2015
$ 109,830
$ 108,465
$ 115,337
89,502
19,178
881
2,340
3,436
522
2.914
957
1,957
(18)
Fiscal Year:
($ in millions)
Year Ended:
Net earnings including noncontrolling interests, as reported
Less: Increase in earnings due to enactment of new tax law
Net earnings including noncontrolling interests, excluding
effect of new tax law
85,496
17,946
723
2,089
3,576
482
Interest expense
x one minus marginal tax rate"
Interest expense (after-tax)
Earnings before interest (EBI) excluding effect of new tax law
Assets at end of year
Assets at beginning of year
3,094
1,045
2,049
10
1,975 $ 2,039 $ 1,728
2017
February
3, 2018
$ 1,889
902
987
601
0.65
391
1.378
37,197
36,505
36,851
85,512
17,161
707
1,948
3,137
488
Average assets
Return on assets (EBI/Average assets)
3.7%
Source: Amounts derived from information in The Kroger Company's Form 10-Ks for the years presented.
2,649
902
1,747
19
2016
January
28, 2017
$ 1,957
1,957
522
0.65
339
2,296
36,505
33,897
35,201
6.5%
2015
January
30, 2016
2,049
2,049
482
0.65
313
2,362
33,897
30,497
32,197
7.3%
2014
January
31, 2015
S 1,747
1,747
488
0.65
317
2,064
30,497
29,281
29,889
6.9%
Transcribed Image Text:EXHIBIT 6.6 The Kroger Co.
Comparative Balance Sheets
(S in millions)
Assets
Current assets:
Cash and temporary cash investments
Store deposits in-transit
Receivables
FIFO inventory
LIFO reserve
Assets held for sale
Prepaid and other current assets
Total current assets
Property, plant and equipment, net
Intangibles, net
Goodwill
Other assets
Total assets
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt
including obligations under capital
leases and financing obligations
Trade accounts payable
Accrued salaries and wages
Deferred income taxes
Liabilities held for sale
Other current liabilities
Total current liabilities
Long-term debt including obligations
under capital leases and financing
obligations
Deferred income taxes
Pension and postretirement benefit
obligations
Other long-term liabilities
Total liabilities
Shareholders' Equity:
Common shares, $1 par per share
Additional paid-in capital
Accumulated other comprehensive
loss
Accumulated earnings
Common shares in treasury, at cost
Total shareholders' equity-The
Kroger Co.
Noncontrolling interests
Total equity
Total liabilities and shareholders'
equity
Source: The Kroger Company Form 10-Ks for the years
presented.
February January January
3, 2018 28, 2017
30, 2016
347 $
1,161
1,637
7,781
(1,248)
604
835
11.117
$
21,071
1,100
2,925
984
$ 37,197
$ 3,560
5,858
1,099
251
259
3,421
14.197
12,029
1,568
792
1,706
30,292
1,918
3,161
6,931
(26)
322 $ 277
910
923
1,734
7,440
(1,272)
6,905
1,649
7.852
(1,291)
898
10,340
21,016
1,153
3,031
965
3,305
12,860
19,619
17,912
1,053
757
2,304
2,724
609
$36,505 $ 33,897 $ 30,497
613
11,825
1.927
1,524
1,659
29,795
790
9,892
$ 2,252 $ 2,370 $ 1,874
5,818
5,728
5,052
1,234
1,426
1,291
221
287
1,918
3,070
6,698
12
6,710
3,226
12,971
9,709
1,752
1,918
2,980
January
31, 2015
6,820
$
(22)
268
988
1,266
6,933
(1,245)
6,798
701
8,911
(471)
(715)
(680)
(812)
17,007 15,543
14,011 12,367
(14,684) (13,118) (11,409) (10,809)
$ 37,197 $36,505 $ 33,897
1,380
1,463
1,287
1.268
27,099 25,055
2,888
11,392
9,723
1,209
1,918
2,748
5,412
30
5,442
$ 30,497
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