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ACCT 2101 CLASS EXERCISE DATE _____________ Topic: Asset Ratios Name _____________________________ Section _____ At this point, we are in a position to evaluate a company’s effective use of its assets. To do that, three ratios are usually considered – Profit Margin Percentage, Asset Turnover Ratio, and Return on Assets Ratio. These ratios are defined below. Using the Income Statements and Balance Sheets of Home Depot and Lowe’s: Compute the (a) Profit Margin Percentage , (b) Asset Turnover Ratio, and (c) Return on Assets Ratio for the years ended January/February 2007 and 2008. Total Assets for 2006 for
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Unformatted text preview: each company are: Home Depot -- $44,405; Lowe’s -- $24,639. What can you say about each company’s effective use of its asset base? (a) Profit Margin Percentage = Net Income / Net Sales Home Depot – 2007: Home Depot – 2008: Lowe’s – 2007: Lowe’s – 2008: (b) Asset Turnover Ratio = Net Sales / Average Total Assets Home Depot – 2007: Home Depot – 2008: Lowe’s – 2007: Lowe’s – 2008: (c) Return on Assets Ratio = Net Income / Average Total Assets OR Profit Margin Percentage x Asset Turnover Ratio Home Depot – 2007: Home Depot – 2008: Lowe’s – 2007: Lowe’s – 2008:...
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