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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

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 40E: Cuneo Companys income statements for the last 3 years are as follows: Refer to the information for...
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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:

  1. Kroger earned an ROA of 6.9% in fiscal 2014. What was ROCE that year? (Round your answer to 1 decimal place.)
  2. 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.)
  3. 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
 
The solution provided here is incorrect on both ROCE 2014 and 2017
 
https://www.bartleby.com/questions-and-answers/accounting-question/c6ae7ccf-dbdc-4f14-a0f2-d10cf6b460ec
 
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 6.1 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%
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
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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