Required information Ratio Analysis Read the overview below and complete the activities that follow. Assessing how well a company's strategy is presently working involves evaluating the strategy from both a qualitative standpoint and from a quantitative standpoint. The stronger a company's current overall performance, the less likely the need for radical strategy changes. The weaker a company's performance, the more its current strategy must be questioned. The financial ratios provided in the Appendix are the most commonly used to evaluate a company's financial performance and balance sheet strength. Assurance of Learning Exercise 1 provides you with an opportunity to assess Macy's, Inc., financial performance and balance sheet strength. This exercise requires the same calculations and overall assessment. Instructions: Using the financial ratios provided in the Appendix and the financial statement information for Macy's, Inc. below, calculate the following ratios for Macy's for both 2015 and 2016. a. Gross profit margin. b. Operating profit margin. c. Net profit margin. d. Times interest earned coverage. e. Return on shareholders' equity. f. Return on assets. g. Long-term debt-to-equity ratio. h. Days of inventory. i. Inventory turnover ratio. j. Average collection period. Based on these ratios, did Macy's financial performance improve, weaken, or remain about the same from 2015 to 2016? 2015 $27,079 (16,496 10,583 (8,256) (288) Consolidated Statements of Income for Macy's, Inc., 2015-2016 (in millions, except per share amounts) 2016 Net sales $25,778 Cost of sales (15,621 Gross margin 10.157 Selling, general and administrative expenses (8,265) Impairments, store closing and other costs (479) Settlement charges 198) Operating income 1,315 Interest expense Premium on early retirement of debt Interest income Income before income taxes Federal, state, and local income tax expense Net income Net loss attributable to noncontrolling interest Net income attributable to Macy's, Inc. shareholders Basic earnings per share attributable to Macy's, Inc. shareholders Diluted earnings per share attributable to Macy's, Inc. shareholders 2.039 (363) (367) 1.678 070 1,072 3.26 $ 3.22 7,616 Consolidated Balance Sheets for Macy's, Inc., 2015-2016 (in millions) ASSETS 2016 2015 Current Assets: Cash and cash equivalents $ 1,297 $ 1,109 Receivables 522 558 Merchandise inventories 5,399 5,506 Prepaid expenses and other current assets 408 479 Total Current Assets 7,626 7,652 Property and Equipment - net 7,017 Goodwill 3,897 3,897 Other Intangible Assets - net 498 514 Other Assets 813 897 Total Assets $19,851 $20,576 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilties: Short-term debt $309 $642 Merchandise accounts payable 1,423 1,526 Accounts payable and accrued liabilities 3,563 3,333 Income taxes 227 Total Current Liabilities 5,728 Long-Term Debt 6,562 6,995 Deferred Income Taxes 1,443 1,477 Other Liabilities 1,877 2,123 352 5,647 Shareholders' Equity: Common stock (304.1 and 310.3 shares outstanding) Additional paid-in capital Accumulated equity Treasury stock Accumulated other comprehensive loss Total Macy's, Inc. Shareholders' Equity Noncontrolling interest Total Shareholders' Equity Total Liabilities and Shareholders' Equity 617 6,088 (1,489) (896 4,323 621 6,334 (1,665) (1.043) 4,250 4,322 $19,851 4.253 $20,576 Note: Developed with Meredith Peabody Using the formulas in the Appendix and Macy's, Inc., financial statement above, calculate the following measures of financial performance. Be sure to report items (a) through (e) in percentages (i.e., multiply your result x 100). a. Gross profit margin. b. Operating profit margin. c. Net profit margin. d. Times interest earned coverage. e. Return on shareholders' equity. f. Return on assets. g. Long-term debt-to-equity ratio. h. Days of inventory. i. Inventory turnover ratio. j. Average collection period. Ratios 2016 39.4 27.0 2015 39.1 a. C. d. e. f. g. h. Gross profit margin (%) Operating profit margin (%) Net profit margin (%) Return on shareholders' equity (%) Return on assets (%) Times interest earned coverage Long-term debt-to-equity ratio Days of inventory Inventory turnover ratio Average collection period