Question

Selected balance sheet and income statement information [US$ millions] from Abercrombie & Fitch [ANF] and TJX...

Selected balance sheet and income statement information [US$ millions] from Abercrombie & Fitch [ANF] and TJX Companies, clothing retailers in the high-end and value-priced segments, respectively, follows. Compute the 2016 return on net operating assets (RNOA) for both companies.

2016 Sales

2016 NOPAT

2016 NOA

2015 NOA
ANF

$2,784.7

$324.7

$565.0

$ 361.7

TJX

16,057.9

708.5

2,235.9

2,139.5

ANF is 70.08% & TJX is 32.39%

Why is your TJX RNOA significantly different from that of ANF?

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Answer #1

Return on Net Operating Assets=NOPAT/NOA

2016:
ANF=324.7/565=57.469026549%

TJX=708.5/2235.9=31.687463661%

NOPAT/NOA=Sales*NOPAT Margin/NOA=Sales/NOA*NOPAT Margin

Sales/NOA for ANF=2784.7/565=4.92867257

Sales/NOA for TJX=16057.9/2235.9=7.18185071

NOPAT Margin for ANF=324.7/2784.7=11.660142924%

NOPAT Margin for TJX=708.5/16057.9=4.412158501%

The difference lies in the difference in asset utilisation efficiency and profit margin of the two companies. Profit Margin is the primary factor.

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