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AccountingFinancial And Managerial Accounting15th Edition
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Analyze Home Depot The Home Depot (HD) reported the following data (in millions) in its recent financial statements: a. Determine the asset turnover ratio for Home Depot for Year 2 and Year 1. Round to two decimal places. b. What conclusions can be drawn from these ratios concerning the change in the ability of Home Depot to effectively use its assets to generate sales?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 5, Problem 5MAD
Textbook Problem
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Analyze Home Depot

The Home Depot (HD) reported the following data (in millions) in its recent financial statements:

Chapter 5, Problem 5MAD, Analyze Home Depot The Home Depot (HD) reported the following data (in millions) in its recent

a. Determine the asset turnover ratio for Home Depot for Year 2 and Year 1. Round to two decimal places.

b. What conclusions can be drawn from these ratios concerning the change in the ability of Home Depot to effectively use its assets to generate sales?

a.

To determine

Calculate the asset turnover ratio of Company HD for year 2 and year 1.

Explanation of Solution

Asset turnover ratio: Asset turnover ratio measures the productive capacity of the total assets to generate the sales revenue for the company. Thus, it shows the relationship between the net sales and the average total assets.

Calculate the asset turnover ratio for year 2.

Asset turnover ratio = Total RevenuesAverage assets= $95,595$42,469.5= 2.25

Calculate the asset turnover ratio for year 1.

Asset turnover ratio = Total RevenuesAverage assets= $88,519$40,959.5= 2.16

Working note:

Calculate the average assets of Company HD for year 2

b.

To determine

Interpret the result of change in the ability of Company HD in using its assets to generate sales.

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