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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Asset turnover

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

  Year 2 Year 1
Sales $83,176 $78,812
Total assets at the end of the year 39,946 40,518
Total assets at the beginning of the year 40,518 41,084
  1. a. Determine the asset turnover for The Home Depot for Year 2 and Year 1. Round to two decimal places.
  2. b. What conclusions can be drawn concerning the trend in the ability of The Home Depot to effectively use its assets to generate sales?

a.

To determine

Asset turnover ratio is used to determine the efficiency of the company towards use of asset towards generation of sales. The formula to calculate asset turnover is given below:

Assetturnover=NetrevenueAverage total assets

To Determine: The asset turnover for year 2 and year 1 for Company H.

Explanation

Working Notes:

Calculate the average total assets.

Beginning assets = $40,518

Ending assets = $39,946

Averagetotalassets=Beginningassets+Endingassets2=$40,518+$39,9462=$40,232 (1)

Calculate the asset turnover for year 1.

Sales/ net revenue = $78,812

Average total assets = $40,801 (2)

Assetturnover=Netrevenue

b.

To determine

To Comment: On the trend in the ability of Company H to effectively use its assets to generate sales.

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