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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Profitability metrics
Macy's, Inc. (M).

sells merchandise through company-owned retail stores and Internet website. Recent financial information for Macy's is provided below (all numbers in millions).

Assume the apparel industry's average return on total assets is 8.2%, and the average return on stockholders' equity is 10.0% for Year 3.
a.Determine the return on total assets for Macy's for Years 2 and 3. Round to one decimal place.
b. Determine the return on stockholders' equity for Macy's for Years 2 and 3. Round to one decimal place.
c. Evaluate the changes in the profitability ratios determined in (a) and (b).

To determine

(a)

Concept Introduction:

Profitability analysis:

It is used to evaluate the ability of a company to earn income in relation to assets, operating cost and shareholders' equity during a specific period.

Return on total assets shows the total return on investment made by the firm.

To calculate:

Return on total assets for year 2 and 3.

Explanation

  Return on total assets=net income+interest expenses Average total assets

    ParticularsYear 3Year 2
    Net income$1,526$1,486
    Interest Expense$864$804
    Total assets (beginning)$21,620$20,991
    Total assets (ending)$21,461$21,620
    Total assets (average)$21,461+$21,6202=$21,540
To determine

(b)

Concept Introduction:

Profitability analysis:

It is used to evaluate the ability of a company to earn income in relation to assets, operating cost and shareholders' equity during a specific period.

Return on shareholders' equity shows total return on investment by shareholders.

Return on shareholders' equity for year 2 and 3.

To determine

(c)

Concept Introduction:

Profitability analysis:

It is used to evaluate the ability of a company to earn income in relation to assets, operating cost and shareholders' equity during a specific period.

It measures how efficiently the resources have been utilised to generate profit.

The change in profitability ratios using return on total assets and return on shareholders' equity.

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