AT = sales revenue/average total assets
AT (HD) = 70395/40321.5
AT (HD) = 1.75
PM (Lowes) = 2085.35/50208
PM (Lowes) = 4.2%
AT (Lowes) = 50208/33629
AT (Lowes) = 1.49
The profit margin measures the profit, without interest expense, that is generated from each dollar of sales revenue. The asset turnover indicates the amount in sales revenue generated from each dollar of assets. ROA can actually be restated as the product of profit margin and asset turnover
Both companies have almost identical GPM, approximately 35% of every sales dollar is gross profit and the other 65% is to cover the cost of goods sold. Both companies also have a similar operating ETS. For Home Depot, 25% of every sales dollar goes to pay operating costs and for Lowes, 28% of every sales dollar goes to pay operating costs.
d. ART = sales revenue/avg accounts receivable
ART (HD) = 70395/(1245 + 1085)2
ART (HD) = 70395/1165
ART (HD) = 60.4
The accounts receivable turnover for Home Depot is 60.4, indicating that receivables have been collected 60.4 times during the period. Lowes does not indicate any accounts receivables on their balance sheet so the ART cannot be calculated for Lowes.
The inventory turnover indicates the number of times that total inventory is sold. Home Depot’s INVT is at 4.4 times and Lowes INVT is at 3.9 times for the period. The figures are somewhat comparable, with Home Depot’s being only slightly higher. For retail stores, the higher the INVT, the better.
Property, plant, and equipment turnover measures the sales revenue generated for each dollar of investment in PP&E. Home Depot’s PPET is 2.8 times and Lowes’ is 2.3 times. Both, again are somewhat comparable, with Home Depot’s PPET being only slightly higher
