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Profitability Analysis with Financial Ratio

Profitability analysis for two types of retailers. Information taken from recent annual reports of two retailers appears as follows (amounts in millions). One of these companies is Family Dollar Stores, a discount store chain, and the other is Abercrombie & Fitch, a specialty retailer of apparel. The income tax rate is 35%. Indicate which of these companies Family Dollar Stores is and which is Abercrombie & Fitch. Explain your reasoning using appropriate financial ratios.
Company A Company B
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,750 $6,834
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 17
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 243
Average Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,458 2,574

Solution Preview

Company A is Abercrombie & Fitch, a specialty retailer of apparel as it has higher profit margin and lower total assets turnover than Company B, the Family Dollar Stores, a discount store chain.

Company A: Rate of return on Assets = [476 + ...

Solution Summary

Using financial ratio such as Profit Margin and Asset Turnover Ratio to determine company nature.

$2.19