Harrod's Sporting Goods

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Case Analysis # 1
FINC 302

Profit Ratios for 2004:
Profit Margin= Net income ÷ Sales
193,200 ÷ 4,269,871 = 4.5%
Return on Assets
a. Net income ÷ Total assets
193,200 ÷ 3,170,200 = 6.1%
b. (Net income ÷ Sales) x (Sales ÷ Total Assets)
(193,200 ÷ 4,269,871) x (4,269,871 ÷ 3,170,200) = 6.1%
Return on Equity
a. Net income ÷ Stockholders Equity
193,200 ÷ 1,204,600 = 16%
b. Return on Assets (investment) ÷ (1 – Debt/Assets) .061 ÷ (1 – 1,965,600/3,170,200) = .061 ÷ .38 = 16%

Profit Ratios for 2005:
Profit Margin= Net income ÷ Sales
243,100 ÷ 4,483,360 = 5.4%
Return on Assets
a. Net income ÷ Total assets
243,100 ÷ 3,360,650 = 7.2%
b. (Net income ÷ Sales) x (Sales ÷ Total Assets)
(243,100 ÷ 4,483,360) x (4,483,360 ÷ 3,360,650) = 7.2%

Return on Equity
a. Net income ÷ Stockholders Equity
243,100 ÷ 1,310,655 = 18.5%
b. Return on Assets (investment) ÷ (1 – Debt/Assets)
.072 ÷ (1 – 2,049,995/3,360,650) = .072 ÷ .39 = 18.5%

Profit Ratios for 2006:
Profit Margin= Net income ÷ Sales
200,318 ÷ 5,021,643 = 4%
Return on Assets
a. Net income ÷ Total assets
200,318 ÷ 3,510,110 = 5.7%
b. (Net income ÷ Sales) x (Sales ÷ Total Assets)
(200,318 ÷ 5,021,643) x (5,021,643 ÷ 3,510,110) = 5.7%
Return on Equity
a. Net income ÷ Stockholders Equity
200,318 ÷ 1,333,800 = 15%
b. Return on Assets (investment) ÷ (1 – Debt/Assets)
.057 ÷ (1 – 2,176,310/3,510,110) = .057 ÷ .38 = 15%

For all three ratios (profit margin, return on assets, and return on equity) the trends from 2004 to 2006 remains the same. All three ratios increased from year 2004 to 2005, but dramatically decreased from 2005 to 2006 dropping below the percent ratios of 2004. The increase of Profit margin indicates that Harrods sporting goods had a higher return on the sales dollar which shows good cost control, the decrease (2005-2006) of the same ratio indicates the company having a lower return on the sales...
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