Exhibit 4.18 presents selected operating data for three retailers for a recent year. Albertsons sells grocery products. Home Depot sells a wide range of home improvement products, which includes products ranging from riding lawnmowers to lighting fixtures to kitchen countertops. Federated Department Stores operates several department store chains selling products ranging from brand-name clothing to china, cosmetics, and bedding.
Required
a. Compute the rate of return on assets for each firm. Disaggregate the rate of return on assets into profit margin for ROA and assets turnover components. The income tax rate is 35 percent.
b. Describe the likely reasons for the differences in the profit margins for ROA and assets turnovers of the three companies.