Question

Staples, Inc. is one of the largest suppliers of office products in the United States. Suppose it had net income of $738.7 million and sales of $24,275.5 million in 2017. Its total assets were $13,073.1 million at the beginning of the year and $13,717.3 million at the end of the year. What is Staples, Inc.’s (a) asset turnover and (b) profit margin? (Round asset turnover to 2 decimal places, e.g. 1.25 and profit margin to 1 decimal place, e.g. 2.5%.)

Answer 1

(a) Asset turnover ratio = 3.62 times

(b) Profit margin = 3%

Step-by-step explanation:

(a) Asset turnover ratio is computed to calculate the sales relative to the company's assets.

It's formula =
`(Net Sales)/(Average Assets)`

Where net sales are taken as it is from income statement and average assets is the sum of opening and closing assets divided by two.

Average assets here =
`(Assets beginning + Assets Closing)/(2)`

=
`(13,073.1 + 13,717.3)/(2)` = $13,395.2

Net Sales = $24,275.5

Asset turnover ratio =
`(24,275.5)/(13,395.2) = 3.62`

(b) Profit margin =
`(Net Income)/(Net Sales)`

This ratio is calculated in percentage and this is to evaluate the company's net margin on sales.

Profit margin =
`(738.7)/(24,275.5) * 100` = 3%

Final Answer

(a) Asset turnover ratio = 3.62 times

(b) Profit margin = 3%