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