Profit Margin

Profit Margin Assignment

Exhibit 4.22 presents selected operating data for three retailers for a recent year. Macy’s operates several
department store chains selling consumer products such as brand-name clothing, china, cosmetics, and
bedding and has a large presence in the bridal and formalwear markets (under store names Macy’s and
Bloomingdale’s). Home Depot sells a wide range of building materials and home improvement products,
which includes lumber and tools, riding lawn mowers, lighting fixtures, and kitchen cabinets and appliances.
Supervalu operates grocery stores under numerous brands (including Albertsons, Cub Foods, JewelOsco, Shaw’s, and Star Market).

Struggling to find relevant content or pressed for time? – Don’t worry, we have a team of professionals to help you on
Profit Margin
Get a 15% Discount on this Paper
Order Now

Macy's

  1. Compute the rate of ROA for each firm. Disaggregate the rate of ROA into profit margin for ROA
    and assets turnover components. Assume that the income tax rate is 35% for all companies.
  2. Based on your knowledge of the three retail stores and their respective industry concentrations, describe
    the likely reasons for the differences in the profit margins for ROA and assets turnovers.

Answers

Profit margin

Profit margfin

Macy’s performed poorly, reporting a large net loss. It also has the slowest assets turnover of the
three companies. Its product line is less commodity-like than either Supervalu’s or Home Depot’s. Its
clothing has a higher fashion orientation, allowing it normally to achieve a high profit margin (lower
cost of goods sold to sales percentage).

One would expect Macy’s to have the highest profit margin.
The greater use of sales personnel in stores increases its selling expenses. Each store tends to be
unique in terms of design and construction, which increases building costs and lowers the fixed asset
turnover.

However, margin is masked by the overall net loss for the year. As Macy’s reports in its
10-K, “In recent periods, consumer spending levels have been adversely affected by a number of factors,
including substantial declines in the level of general economic activity and real estate and investment
values, substantial increases in consumer pessimism, unemployment and the costs of basic necessities,
and a significant tightening of consumer credit.

These conditions have reduced the amount of funds
that consumers are willing and able to spend for discretionary purchases, including purchases of some
of the merchandise offered by the Company.” Its inventory turnover is, not surprisingly, the lowest of
the three companies because it uses low prices as a strategy less frequently. As a result, its total asset
turnover is the lowest of the three companies.

Home Depot was the only profitable company, so it is the only company showing a positive profit
margin for ROA. Combined with total assets turnover between the other two companies, Home Depot
reported a respectable 6.2% ROA when many other companies reported losses. Perhaps this reflects
a combination of efficient operations combined with continued demand for do-ityourself products,
which persist during economic downturns, as homeowners perform work that they would otherwise pay
professionals to do.

Nevertheless, Home Depot’s performance deteriorated from prior years, and the 10-
K states, “. . . the housing, residential construction and home improvement markets have deteriorated
dramatically and more severely than was previously anticipated.” Home Depot has the second highest
COGS/Sales percentage, which falls between the branded items sold by Macy’s and commodity items
sold by Supervalu.

Home Depot’s overall asset turnover also lies between Macy’s and Supervalu, but
individual asset turnover ratios lie closer to Macy’s than to Supervalu, which is not surprising given
Home Depot’s inventory of nonperishable products.

Overall, Home Depot’s profitability likely resulted from lower selling and administrative expenses as a percentage of sales. Home Depot probably offer less sales help in its stores than Macy’s does. Home Depot also holds down administrative expenses by building similar stores and spreading such costs over a larger number of stores. Its mid-range assets turnover reflects mid-range inventory and fixed asset turnovers. Its building costs are likely similar to
those of Supervalu, but Home Depot does not turn over its inventory as rapidly. The slower inventory
turnover decreases sales and therefore decreases the fixed asset turnover.

Supervalu sells grocery products, which are essentially commodities. There also is extensive competition
in the grocery products business. Thus, one would expect it to have the lowest profit margin for ROA,
but this was a year in which many companies reported losses, and the grocery industry was no different.

The 10-K reports, “The unprecedented decline in the economy and credit market turmoil during fiscal
2009 combined with high food inflation and energy costs negatively impacted consumer confidence and
spending.” [Supervalu’s fiscal year ended February 28, 2009, which management refers to as their 2009
year, but we adopt the common treatment of describing this fiscal year as 2008 because 10/12ths of
their fiscal year is in calendar 2008.]

Note that it has the highest cost of goods sold to sales percentage of the three companies, indicating the commodity nature of its products and the relatively small markup of selling prices over costs. Supervalu also has the highest assets turnover, the result of a rapid inventory turnover and relatively low investment in fixed assets, especially compared to Macy’s.

Supervalu’s rapid inventory turnover also results from the perishable nature of many of its products.
The rapid inventory turnover increases sales and thereby the fixed asset turnover as well. Its stores
are less complicated to build and thus are less costly than those of department stores.

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
Sign up, place your order, and leave the rest to our professional paper writers in less than 2 minutes.
step 1
Upload assignment instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
s
Get personalized services with MyCoursebay
One writer for all your papers
You can select one writer for all your papers. This option enhances the consistency in the quality of your assignments. Select your preferred writer from the list of writers who have handledf your previous assignments
Same paper from different writers
Are you ordering the same assignment for a friend? You can get the same paper from different writers. The goal is to produce 100% unique and original papers
Copy of sources used
Our homework writers will provide you with copies of sources used on your request. Just add the option when plaing your order
What our partners say about us
We appreciate every review and are always looking for ways to grow. See what other students think about our do my paper service.
Technology
The paper is everything I needed and more. I will add a title and a cover page to it. Other than that the paper turned out excellent.
Customer 452885, October 17th, 2022
Human Resources Management (HRM)
Thank you
Customer 452701, July 26th, 2023
Other
GREAT JOB THANK YOU.
Customer 452813, July 18th, 2022
Nursing
Thank you for a great paper!!
Customer 452707, November 28th, 2022
Nursing
Work is always perfectly done.
Customer 452707, January 11th, 2024
Application Letters
Well written essay, will definitely use this service in the future.
Customer 452773, April 14th, 2022
Criminal Justice
Thank you for the great paper. I like how the writer structured it.
Customer 452627, October 2nd, 2021
Nursing
The writer went above and beyond for this assignment. I am so grateful for the help.
Customer 452707, August 19th, 2022
Technology
Great job on the paper!
Customer 452885, December 14th, 2022
Nursing
excellent service! Not a beat missed!
Customer 452453, October 17th, 2021
Human Resources Management (HRM)
Thanks for the paper.
Customer 452701, September 15th, 2023
Nursing
I appreciate all the hard work. Thank you!
Customer 452525, August 13th, 2021
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat

Good News ! We now help with PROCTORED EXAM. Chat with a support agent for more information

NEW

Thank you for choosing MyCoursebay. Your presence is a motivation to us. All papers are written from scratch. Plagiarism is not tolerated. Order now for a 15% discount

Order Now