INTERPRETING FINANCIAL STATEMENTS

BYP9-4 The March 29, 2012, edition of the Wall Street Journal Online contains an article by

Miguel Bustillo entitled, "Best Buy Forced to Rethink Big Box." The article explains how the 1,100 giant stores, which enabled Best Buy to obtain its position as the largest retailer of electronics, are now reducing the company's profitability and even threatening its survival. The problem is that many customers go to Best Buy stores to see items but then buy them for less from online retailers.

As a result, Best Buy recently announced that it would close 50 stores and switch to smaller stores.However, some analysts think that these changes are not big enough.

The following data were extracted from the 2011 and 2006 annual reports of Best Buy. (All

amounts are in millions.)

2011 2010 2006 2005

Total assets at year-end $17,849 $18,302 $11,864 $10,294

Net sales 50,272 30,848

Net income 1,277 1,140

Instructions :

Using the data above, answer the following questions.

(a) How might the return on assets and asset turnover of Best Buy differ from an online

retailer?

(b) Compute the profit margin, asset turnover, and return on assets for 2011 and 2006.

(c) Present the ratios calculated in part (b) in the equation format shown in Illustration 9-21

(page 466).

(d) Discuss the implications of the ratios calculated in parts (b) and (c).