Reference no: EM132499818

Question 1: Compute ROA, Profit Margin and Asset Turnover for Competitors

Selected balance sheet and income statement information from Urban Outfitters, Inc. and TJX Companies, clothing retailers in the high-end and value-priced segments, respectively, follows.

Company ($ millions)

2017

Sales

2017 Earnings

Without Interest

Expense (EWI)

2017 Total

Assets

2016 Total

Assets

Urban Outfitters . . . . . . . . . . . . . . . . . . $ 3,616 $ 108 $ 1,953 $ 1,903

TJX Companies . . . . . . . . . . . . . . . . . . 35,865 2,653 14,058 12,884

Question 1 a. Compute the 2017 return on assets (ROA) for both companies.

Question 1 b. Disaggregate ROA into profit margin (PM) and asset turnover (AT) for each company. Confirm that ROA = PM × AT.

Question 1 c. Discuss differences observed with respect to PM and AT and interpret these differences in light of each company's business model.