Assessing how well a companys strategy is presently working involves evaluating the strategy from both a qualitative standpoint and from a quantitative standpoint. The stronger a companys current overall performance, the less likely the need for radical strategy changes. The weaker a companys performance, the more its current strategy must be questioned.

The financial ratios provided in the Appendix are the most commonly used to evaluate a companys financial performance and balance sheet strength. Assurance of Learning Exercise 4.1 provides you with an opportunity to assess Macys Inc., financial performance and balance sheet strength. This exercise requires the same calculations and overall assessment. Before completing this exercise, be sure to read Chapter 4: Evaluating a Companys Resources, Capabilities and Competitiveness as well as reviewing the Appendix; Key Financial Ratios: How to Calculate Them and What They Mean.

Using the financial ratios provided in the Appendix and the financial statement information for Macys Inc. below, calculate the following ratios for Macys for both 2018 and 2019:

1. Gross profit margin.
2. Operating profit margin.
3. Net profit margin.
4. Times interest earned coverage.
5. Return on shareholders equity.
6. Return on assets.
7. Debt-to-equity ratio.
8. Days of inventory.
9. Inventory turnover ratio.
10. Average collection period.

Consolidated Statements of Income for Macys Inc., Feb. 03, 2018Feb. 02, 2019 (in millions, except per share data)
	2019	2018
Net sales	$24,971	$24,939
Credit Card Revenues, Net	768	702
Cost of Sales	(15,215)	(15,181)
Selling, General, and Administrative Expenses	(9,039)	(8,954)
Gains on Sale of Real Estate	389	544
Restructuring, Impairment, Store Closing, and Other Costs	(136)	(186)
Operating Income/Loss	1,738	1,864
Benefit Plan Income	39	57
Settlement Charges	(88)	(105)
Interest Expense	(261)	(321)
Gains (Losses) on Early Retirement of Debt	(33)	10
Interest Income	25	11
Income (loss) before Income Taxes	1,420	1,516
Federal, State, and Local Income Tax Benefit (Expense)	(322)	39
Net Income (Loss)	1,098	1,555
Net Loss Attributed to Noncontrolling Interest	10	11
Net Income Attributed to Macys, Inc. Shareholders	$1,108	$1,566
Basic Earnings per Share Attributable to Macys, Inc. Shareholders	$3.60	$5.13
Diluted Earnings per Share Attributable to Macys, Inc. Shareholders	$3.56	$5.10

Consolidated Balance Sheets for Macys Inc., Feb. 03, 2018Feb. 02, 2019 (in millions, except per share data)
ASSETS	February 2, 2019	February 3, 2018
Current Assets
Cash and Cash Equivalents	$1,162	$1,445
Receivables	400	363
Merchandise Inventories	5,263	5,178
Prepaid Expenses and Other Current Assets	620	650
Total Current Assets	$7,445	$7,646
Property and EquipmentNet	6,637	6,672
Goodwill	3,908	3,897
Other Intangible AssetsNet	478	488
Other Assets	726	880
Total Assets	19,194	19,583
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities
Short-Term Debt	$43	$22
Merchandise Accounts Payable	1,655	1,590
Accounts Payable and Accrued Liabilities	3,366	3,271
Income Taxes	168	296
Total Current Liabilities	5,232	5,179
Long-Term Debt	4,708	5,861
Deferred Income Taxes	1,238	1,148
Other Liabilities	1,580	1,662
Shareholders Equity:
Common Stock (307.5 and 304.8 shares outstanding)	3	3
Additional Paid-In Capital	652	676
Accumulated Equity	8,050	7,246
Treasury Stock	(1,318)	(1,456)
Accumulated Other Comprehensive Loss	(951)	(724)
Total Macys Inc. Shareholders Equity	6,436	5,745
Noncontrolling Interest	0	(12)
Total Shareholder Equity	$6,436	$5,733
Total Liabilities and Shareholder Equity	$19,194	$19,583

Source: Macys Inc., 2018 10-K.

Note: Developed with Meredith Peabody

Using the formulas in the Appendix and Macys Inc., financial statements below, calculate the following measures of financial performance. Be sure to report items (a) through in percentages (i.e., multiply your result x 100 and round to the nearest +/- 0.1%)

1. Gross profit margin.
2. Operating profit margin.
3. Net profit margin.
4. Return on shareholders equity.
5. Net Return on assets.
6. Times-interest-earned (or coverage) ratio.
7. Debt-to-equity ratio.
8. Days of inventory.
9. Inventory turnover ratio.
10. Average collection period.

a. b. C. d. e. f. g. h. i. Answer is complete but not entirely correct. Ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on shareholders' equity (%) Return on assets (%) Times interest earned coverage Debt-to-Equity Ratio Days of Inventory Inventory Turnover Ratio Average collection period 2019 39.1 X 6.0 X 4.4 17.2 X 1.3 X 6.7 0.73 X 126 2.9 6.0 X 2018 39.1 7.5 6.2 27.3 x 1.3 X 5.8 1.0 124 X 2.9 5.0 X a. b. C. d. e. f. g. h. i. Answer is complete but not entirely correct. Ratios Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on shareholders' equity (%) Return on assets (%) Times interest earned coverage Debt-to-Equity Ratio Days of Inventory Inventory Turnover Ratio Average collection period 2019 39.1 X 6.0 X 4.4 17.2 X 1.3 X 6.7 0.73 X 126 2.9 6.0 X 2018 39.1 7.5 6.2 27.3 x 1.3 X 5.8 1.0 124 X 2.9 5.0 X