**Comparing Abercrombie & Fitch and TJX Companies**

Following are selected financial statement data from Abercrombie & Fitch (ANF-upscale clothing retailer) and TJX Companies (TJX-value-priced clothing retailer including TJ Maxx) — both dated the end of January 2006 or 2005.

($ millions) |
Company |
Total Assets |
Net Income |
Sales |

2005 | TJX Companies Inc. | $5,075 | ||

2006 | TJX Companies Inc. | 5,496 | $ 690 | $ 16,058 |

2005 | Abercrombie & Fitch | 1,387 | ||

2006 | Abercrombie & Fitch | 1,790 | 334 | 2,785 |

- a) Compute the return on assets for both companies for the year ended January 2006.

Round your answers to one decimal place.

**Search Google for its formulas**

TJX 2006 ROA = Answer 13.1%

ANF 2006 ROA = Answer 21 %

## (b) Dis-aggregate the ROAs for both companies into the profit margin and asset turnover.

**Round profit margin answers to one decimal place.**

TJX 2006 Profit Margin = Answer4.3%

ANF 2006 Profit Margin = Answer11.1%

**Round asset turnover answers to two decimal places.**

TJX 2006 Asset Turnover = Answer 3.04

ANF 2006 Asset Turnover = Answer 1.75

## (c) Which of the following is a likely interpretation of the results of your computations for parts a and b?

- ANF turns its assets much faster than TJX and this is the primary reason for its higher return on assets.
- ANF is realizing a higher return on assets as a result of its lower investment in assets.
- ANF’s profit margin more than offsets its lower asset turnover, thus generating higher returns on assets.
- ANF’s higher return on assets is the result of its greater level of sales.

**Correct answer:**

**ANF’s profit margin more than offsets its lower asset turnover, thus generating higher returns on assets.**