Comparing Abercrombie & Fitch and TJX Companies

Comparing Abercrombie & Fitch and TJX CompaniesFollowing are selected financial statement data from Abercrombie & Fitch ANF-upscale clothing

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
  1. 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?

  1. ANF turns its assets much faster than TJX and this is the primary reason for its higher return on assets.
  2. ANF is realizing a higher return on assets as a result of its lower investment in assets.
  3. ANF’s profit margin more than offsets its lower asset turnover, thus generating higher returns on assets.
  4. 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.

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