Staples, Inc. is one of the largest suppliers of office products in the United States. Suppose it had net income of $738.7 million and sales of $24,275.5 million in 2017. Its total assets were $13,073.1 million at the beginning of the year and $13,717.3 million at the end of the year. What is Staples, Inc.’s (a) asset turnover and (b) profit margin? (Round asset turnover to 2 decimal places, e.g. 1.25 and profit margin to 1 decimal place, e.g. 2.5%.)

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stokholm stokholm · Answer 1 · 2019-07-29T11:10:44+02:00

Answer:

(a) Asset turnover ratio = 3.62 times

(b) Profit margin = 3%

Explanation:

(a) Asset turnover ratio is computed to calculate the sales relative to the company's assets.

It's formula = [tex]\frac{Net Sales}{Average Assets}[/tex]

Where net sales are taken as it is from income statement and average assets is the sum of opening and closing assets divided by two.

Average assets here = [tex]\frac{Assets beginning + Assets Closing}{2}[/tex]

=[tex]\frac{13,073.1 + 13,717.3}{2}[/tex] = $13,395.2

Net Sales = $24,275.5

Asset turnover ratio = [tex]\frac{24,275.5}{13,395.2} = 3.62[/tex]

(b) Profit margin = [tex]\frac{Net Income}{Net Sales}[/tex]

This ratio is calculated in percentage and this is to evaluate the company's net margin on sales.

Profit margin = [tex]\frac{738.7}{24,275.5} \times 100[/tex] = 3%

Final Answer

(a) Asset turnover ratio = 3.62 times

(b) Profit margin = 3%