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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Financial leverage

Costco Wholesale Corporation (COST) and Wel-Mart Stroes Inc. (WMT)reported the following data (in milllions) for a recent year:

Compute the profit margin, asset turnover, and financial leverage metrics. Round profitmargin, asset turnover, and financial leverage to two decimal places.Round return onstockholders’ equity to one decimal place.

To determine

Concept Introduction:

DuPont analysis is an Analysis to examine the Return of Equity (ROE) of a company by various means which includes Profit margin, Asset turnover and financial leverage.

To Calculate:

Profit margin, Assets turnover, Financial Leverage, and Return on Investment

Explanation

Profit margin, Assets turnover, Financial Leverage, and Return on Investment are calculated as follows:

    CostcoWal-Mart
    Operating Income (A) $ 2,377 $ 15,080
    Sales (B) $ 116,199 $ 482,130
    Profit Margin (C) = A/B = 2.05%3.13%
    Sales (D) $ 116,199 $ 482,130
    Average Total Assets (E) $ 33,232 $ 201,536
    Asset Turnover Ratio (F)= (D/E) = 3...

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