Harrods Case Study
1. 2004
Profit margin: 193,200/4,269,871=4.5%
Return on Assets: a) 193,200/3,170,200=6.1% b) 193,200/4,269,871 × 4,269,871/3,170,200 = 6.1%
Return on Equity: a) 193,200/1,204,600=16% b) .061/(1-1,965,600/3,170,200) = .061/.38 = 16%
2005
Profit margin: 243,100/4,483,360 = 5.4%
Return on Assets: a) 243,100/3,360,650 = 7.2% b) 243,100/4,483,360 × 4,483,360/3,360,650 = 7.2%
Return on Equity: a) 243,100/1,310,655 = 18.5% b) .072/(1-2,049,995/3,360,650) = .072/.39 = 18.5%
2006
Profit margin = 200,318/5,021,643 = 4%
Return on Assets: a) 200,318/3,510,110 = 5.7% b) 200,318/5,021,643 × 5,021,643/3,510,110 = 5.7%
Return on Equity: a) 200,318/1,333,800 = 15% b) .057/(1-2,176,310/3,510,110) = .057/.38 = 15% 2. All three years have variations. From 2004 to 2005 all of the ratios increased. From 2005 to 2006 all of the ratios decreased. Each year sales and assets increased as did the liabilities. 2006 is the only year the stores had an extraordinary loss ($170,000) which hurt the net income. 3. Profit margin: 310,818/5,021,643 = 6.2%
Return on assets: a) 310,818/3,510,110 = 8.9% b) 310,818/5,021,643×5,021,643/3,510,110 = 8.9%
Return on Equity: a) 310,818/1,333,800 = 23.3% b) .089/(1-2,176,310/3,510,110) = .089/.38 = 23.4% 4. In the past three years the company has been continuing to show positive increases in all three ratios. By eliminating the previous loss the return on equity has increased about 5% from 2005 to 2006 which is better than the 2% increase from 2004 to 2005. 5. Harrod’s is higher than the industry ratios in every category except in fixed asset turnover. They have a higher profit margin (6.2% vs. 4.51%). The total asset turnover is only slightly higher at 1.43x compared to 1.33x. Return on equity is significantly higher at 23.3% vs. industry standard of 9.8% Harrod’s debt to total asset ratio is at 62% which is above the industry standard and above the prudent range of
Profit margin: 193,200/4,269,871=4.5%
Return on Assets: a) 193,200/3,170,200=6.1% b) 193,200/4,269,871 × 4,269,871/3,170,200 = 6.1%
Return on Equity: a) 193,200/1,204,600=16% b) .061/(1-1,965,600/3,170,200) = .061/.38 = 16%
2005
Profit margin: 243,100/4,483,360 = 5.4%
Return on Assets: a) 243,100/3,360,650 = 7.2% b) 243,100/4,483,360 × 4,483,360/3,360,650 = 7.2%
Return on Equity: a) 243,100/1,310,655 = 18.5% b) .072/(1-2,049,995/3,360,650) = .072/.39 = 18.5%
2006
Profit margin = 200,318/5,021,643 = 4%
Return on Assets: a) 200,318/3,510,110 = 5.7% b) 200,318/5,021,643 × 5,021,643/3,510,110 = 5.7%
Return on Equity: a) 200,318/1,333,800 = 15% b) .057/(1-2,176,310/3,510,110) = .057/.38 = 15% 2. All three years have variations. From 2004 to 2005 all of the ratios increased. From 2005 to 2006 all of the ratios decreased. Each year sales and assets increased as did the liabilities. 2006 is the only year the stores had an extraordinary loss ($170,000) which hurt the net income. 3. Profit margin: 310,818/5,021,643 = 6.2%
Return on assets: a) 310,818/3,510,110 = 8.9% b) 310,818/5,021,643×5,021,643/3,510,110 = 8.9%
Return on Equity: a) 310,818/1,333,800 = 23.3% b) .089/(1-2,176,310/3,510,110) = .089/.38 = 23.4% 4. In the past three years the company has been continuing to show positive increases in all three ratios. By eliminating the previous loss the return on equity has increased about 5% from 2005 to 2006 which is better than the 2% increase from 2004 to 2005. 5. Harrod’s is higher than the industry ratios in every category except in fixed asset turnover. They have a higher profit margin (6.2% vs. 4.51%). The total asset turnover is only slightly higher at 1.43x compared to 1.33x. Return on equity is significantly higher at 23.3% vs. industry standard of 9.8% Harrod’s debt to total asset ratio is at 62% which is above the industry standard and above the prudent range of