Prepare an analysis of profitability as follows: 1. Return on capital employed (ROCE) = Net Income Shareholders' Equity + Long-term Debt This measure indicates the profitability of the company relative to the book value of the total funds invested in the company 2012 650 2011 769 Earnings (p. 43) Liabilities: - Current Liabilities = Term Liabilities 11,544 - 5,396 6.148 6.417 12,565 11,421 -4.718 6,703 6,007 12,710 + Shareholders' Equity ROCE = % % 2. Return on Equity (ROE) = Net Income Shareholders' Equity 2012 2011 ROE 3. Return on Sales (ROS) = Earnings Revenue 2012 2011 3 Based on the work of Frederick Reichold, "One Number You Need to Grow," Harvard Business Review, December 2003. Page 3 9B13B008 Earnings Revenue 650 31,604 2012 % 769 31,250 2011 % ROS 4. Gross Profit Margin Gross Profit = Revenues - Cost of Merchandise + Inventories Sold Revenues Cost of Merchandise Gross margin 2012 31,604 24,185 7,419 2011 31,250 23,894 7,356 Gross Profit Margin = Gross Profit Sales 2011 % 2012 Gross Profit Margin % 5. Asset Turnover = Revenue/Assets (times) Revenue Total Assets 2012 31,604 17,961 2011 31,250 17,428 2012 2011 Asset Turnover Liquidity Measures The liquidity of Loblaw can be viewed as its ability to pay its debts. 1. As a retailer, a critical indicator of liquidity is its ability to match consumer demand with selection and pricing as demonstrated by inventory turnover. Inventory turnover = Inventory Cost of Sales / 365 Inventory Cost of Sales 2012 2007 24,185 2011 2025 23,894 Thus 2007/24,185 = 365 - Inventory Turnover 2012 _X 2011 X