Question

Comparing Abercrombie & Fitch and TJX Companies
Following are selected financial statement data from Abercrombie & Fitch (ANF-upscale clothing retailer) and TJX Companies (TJX-value-priced clothing retailer including TJ Maxx).

($ thousands)	Company	Total Assets	Net Income	Sales
2015	TJX Companies Inc.	$10,988,750
2016	TJX Companies Inc.	11,499,482	$2,277,658	$30,944,938
2015	Abercrombie & Fitch	2,505,167
2016	Abercrombie & Fitch	2,443,039	35,576	3,518,680

(a) Compute the return on assets for both companies for the year ended 2016.

Round your answers to one decimal place.

TJX 2016 ROA   = Answer%
ANF 2016 ROA = Answer%

(b) Disaggregate the ROAs for both companies into the profit margin and asset turnover.

Round profit margin answers to one decimal place.

TJX 2016 Profit Margin   = Answer%
ANF 2016 Profit Margin = Answer%

Round asset turnover answers to two decimal places.

TJX 2016 Asset Turnover = Answer
ANF 2016 Asset Turnover = Answer

(c) Which company has better financial performance?

ANF turns its assets much faster than TJX and this is the primary reason for its higher return on assets.

ANF is realizing a higher return on assets as a result of its lower investment in assets.

TJX is outperforming ANF on both dimensions, resulting in a ROA higher than ANF's.

ANF's higher return on assets is the result of its greater level of sales.

Answer 1

Average Assets = (Beginning Assets + ending Assets)/2

TJX = (10,988,750+11,499,482)/2 = 11,244,116

ANF = (2,505,167+2,443,039)/2 = $2,474,103

ROA = Net Income/Average Assets

TJX = 2,277,658/11,244,116 = 20.3%

ANF = 35576/2,474,103

= 1.4%

Profit Margin = Net Income/Net Sales

TJX = 2,277,658/30,944,938

= 7.4%

ANF = 35576/3518680 = 1.0%

Asset turnover = Sales/Average Assets

TJX = 30,944,938/11,244,116 = 2.75 times

ANF = 3518680/2474103 = 1.42 times

TJX is outperforming ANF on both dimensions, resulting in a ROA higher than ANF's.