Scribd
Upload
42 views

Chapter 8 Case Study 8 6

This case study compares the financial ratios of Johnson & Johnson and Best Buy Co. for the year ended 2008 and 2009, respectively. Johnson & Johnson had a higher net profit margin of 20.31% compared to Best Buy's 2.22%, but Best Buy had a higher total asset turnover ratio of 3.15 times versus Johnson & Johnson's 0.76 times. Finally, Johnson & Johnson achieved a higher return on assets of 15.61% than Best Buy's 7.01%, indicating it was more effective at utilizing its economic resources. The differences in ratios between the companies can be attributed to operating in different industries.

Uploaded by

mryanncarol.23
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
42 views

Chapter 8 Case Study 8 6

This case study compares the financial ratios of Johnson & Johnson and Best Buy Co. for the year ended 2008 and 2009, respectively. Johnson & Johnson had a higher net profit margin of 20.31% compared to Best Buy's 2.22%, but Best Buy had a higher total asset turnover ratio of 3.15 times versus Johnson & Johnson's 0.76 times. Finally, Johnson & Johnson achieved a higher return on assets of 15.61% than Best Buy's 7.01%, indicating it was more effective at utilizing its economic resources. The differences in ratios between the companies can be attributed to operating in different industries.

Uploaded by

mryanncarol.23
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Case study 8-6 Return on Assets – Industry comparison

With this case, a comparison is made between two firms in different industry using net profit margin, total
asset turnover and return on assets.
JOHNSON& JOHNSON*
Consolidated Statement of Earnings
Year Ended December 28,2008
(Dollar in Millions, except per share)

Sales to Customer $63,747


Cost of Goods Sold 18,511
Gross Profit 45,236
Selling,marketing, and administrative expenses 21,490
Research Expense 7,577
Purchased in-process research and development 181
Interest income (361)
Interest Expense, Net of capitalized 435
Other (income) expense, net (1,015)
28,307
Earnings before Provision for taxes on income 16,929
Provision for Taxes on Income 3,980
Net Earnings $12,949
Basic net earnings per share $4.62
Diluted net earnings per share $4.57
From consolidated Balance Sheet
Total Assets
December 28,2008 $84,912
December 30, 2007 $80,954

BEST BUY CO.INC*


Consolidated Income Statement of Earnings
Year ended February 28,2009
(Dollars in Millions, except per share amounts)

First Year Ended February 28, 2009


Revenue $45, 015
Cost of Goods Sold 34,017
Gross Profits 10,998
Selling, General and admininstrative expenses 8,984
Restructuring charges 78
Goodwill and Tradename impairment 66
Operating income (expense) 1,870
Other Income (expenses)
Investment income and other 35
Investment impairment (111)
Interest Expense (94)
Earnings before income tax expense, minority 1,700
interest and equity in income(loss) of affiliates
Income tax Expense 674
Minority interest in Earnings (30)
Equity in Income(loss) of Affiliates 7
Net Earnings $1,003
Earnings Per Share
Basic $2.43
Diluted $2.49
From consolidated balance Sheet
Total Assets
February 28, 2009 $15,826
March 1,2008 $12,758

Required
A. Compute the following ratios for Johnson & Johnson:
1. Net Profit Margin
2. Total Asset Turnover
3. Return on Assets
B. Compute the following ratios for Best Buy Co:
1. Net Profit Margin
2. Total Asset Turnover
3. Return on Assets
C. Comment on the effect of the industry on these ratios.

Answer
Net income before noncontrolling interest, Equity, and
nonrecurring items
a. 1. Net Profit margin=
Net Sales

$12,949
=
$63,747

= 0.2031 or 20.31%

Net Sales
2. Total Asset Turnover =
Average Total Asset

63,747
=
82,933

= 0.7686 or 0.76 times


Net income before noncontrolling interest of earnings ad nonrecurring item
3. Return on Asset =
Average Total Asset

12,949
=
82,933

= 0.5161 or 15.61%

Net income before noncontrolling interest, equity and nonrecurring item


b. 1. Net Profit margin =
Average Total Assets

1,003
=
45,015
= 0.0222 or 2.22%

Net Sales
2. Total Asset Turnover=
Average Total Assets

45,015
=
14,292

= 3.149 or 3.15 times

Net Income before noncontrolling interest of earnings and nonrecurring


items
3.Return on Asset =
Average Total Assets

1,003
=
14,292

= 0.0701 or 7.01 %
c. When it comes to net Profit Margin Johnson and Johnson got a higher net profit margin which is
20.31% compared to Best Buy Co INC which is 2.22. It only shows that the Johnson and Johnson
has a better business profitability rather than Best Buy Co INC. In terms of Asset Turnover Ratio
Best Buy Co INC has the higher ability to generate their sales from their asset by comparing net
sales with average total asset. The total asset turnover of Johnson and Johnson is 0.76 times
while the Best Buy Co INC is 3.15 times. In terms of return on assets, the Johnson and Johnson is
more productive and efficient in utilizing economic resources which is 15.61% rather than Best
Buy Co INC which is 0.701 or 7.01%..

You might also like