Question

Question text

Analysis and Interpretation of Profitability
Balance sheets and income statements for Best Buy Co., Inc. follow.

Consolidated Statements of Earnings
For Fiscal Years Ended ($ millions)	February 26, 2011	February 27, 2010	February 28, 2009
Revenue	$ 50,272	$ 49,694	$ 45,015
Cost of goods sold	37,611	37,534	34,017
Restructuring charges - cost of goods sold	24	--	--
Gross Profit	12,637	12,160	10,998
Selling, general and administrative expenses	10,325	9,873	8,984
Restructuring charges	198	52	78
Goodwill and tradename impairment	--	--	66
Operating income	2,114	2,235	1,870
Other income (expense)
Investment income and other	51	54	35
Investment impairment	--	--	(111)
Interest expense	(87)	(94)	(94)
Earnings before income tax expense and equity in income of affiliates	2,078	2,195	1,700
Income tax expense	174	802	674
Equity in income of affiliates	2	1	7
Net earnings including noncontrolling interest	1,366	1,394	1,033
Net income attributable to noncontrolling interest	(89)	(77)	(30)
Net income attributable to Best Buy Co., Inc.	$ 1,277	$ 1,317	$ 1,003

Consolidated Balance Sheets
($ millions, except footnotes)	February 26, 2011	February 27, 2010
Assets
Current assets
Cash and cash equivalents	$ 1,103	$ 1,826
Short-term investments	22	90
Receivables	2,348	2,020
Merchandise inventories	5,897	5,486
Other current assets	1,103	1,144
Total current assets	10,473	10,566
Property and equipment
Land and buildings	766	757
Leasehold improvements	2,318	2,154
Fixtures and equipment	4,701	4,447
Property under capital lease	120	95
	7,905	7,453
Less: Accumulated depreciation	4,082	3,383
Property and equipment, net	3,823	4,070
Goodwill	2,454	2,452
Tradenames, net	133	159
Customer relationships, net	203	279
Equity and other investments	328	324
Other noncurrent assets	435	452
Total assets	$ 17,849	$ 18,302

Liabilities and equity

Current liabilities

Accounts payable

$ 4,894

$ 5,276

Unredeemed gift card liabilities

474

463

Accrued compensation and related expenses

570

544

Accrued liabilities

1,471

1,681

Accrued income taxes

256

316

Short-term debt

557

663

Current portion of long-term debt

441

35

Total current liabilities

8,663

8,978

Long-term liabilities

1,183

1,256

Long-term debt

711

1,104

Equity

Best Buy Co., Inc. Shareholders' equity

Preferred stock, $1.00 par value

--

--

Common stock, $0.10 par value

39

42

Additional paid-in capital

18

441

Retained earnings

6,372

5,797

Accumulated other comprehensive income (loss)

173

40

Total Best Buy Co., Inc. shareholders' equity

6,602

6,320

Noncontrolling interest

690

644

Total equity

7,292

6,964

Total liabilities and equity

$ 17,849

$ 18,302

NOTE: Use net income attributable to controlling interests in your computations, when applicable.

a. Compute ROE for 2011.

Do not round until your final answer. Round answer to two decimal places.

ROE =Answer%

b. Confirm that ROE equals ROE computed using the component measures for profit margin, asset turnover, and financial leverage using: ROE = PM * AT * FL.

   Compute the components of ROE.

   Do not round until your final answer. Round answer to two decimal places.

  PM = Answer%
   AT = Answer
   FL = Answer
  

c. Compute adjusted ROA. Assume a tax rate of: 37.0%.

Round answer to two decimal places.
Adjusted ROA =Answer%

Answer 1

1-
ROE	net income attributable to controlling interest/shareholders equity to controlling interest	1277/6602	19.34%
2-
profit margin	net income attributable to controlling interest/total revenue	1277/50272	2.54%
Total asset turnover	total revenue/total of assets	50272/17849	2.82
equity multiplier	total of assets/total of equity attributable to controlling interest	17849/6602	2.70
ROE	(profit margin*total asset turnover*equity multiplier)	(2.54%*2.82*2.70)	19.34%
after tax ROA	NOPAT*(1-tax rate) / Average of total assets	2114*(1-.37) /18075.5	7.37%
average of total assets	(17849+18302)/2		18075.5