This exercise is built around Kroger's financial statements from the chapter. Total shareholders' equity?The Kroger Co. was $5,384 million at February 1, 2014. Refer toExhibits 6.1,6.6and6.14from the chapter.
Required:
- Kroger earned an ROA of 6.9% in fiscal 2014. What was ROCE that year?(Round your answer to 1 decimal place.)
- ROA at the company fell to 3.7% in fiscal 2017 (adjusted to eliminate the one-time effect on earnings of the Tax Cuts and Jobs Act). What was ROCE that year (also adjusted for the Tax Cuts and Jobs Act)?(Round your answer to 1 decimal place.)
- Did financial leverage help or hurt Kroger in fiscal 2017?
EXHIBIT 6.1 The Kroger Co. Comparative Income Statements Fiscal Year: 2017 2016 2015 2014 (52 weeks) (53 weeks) (52 weeks) (52 weeks) (S in February 3, January January January millions) Year Ended: 2018 28, 2017 30, 2016 31, 2015 Sales $ 122,662 $ 115,337 $ 109,830 $ 108,465 Merchandise costs, including advertising, warehousing, and transportation, excluding items shown separately below 95,662 89,502 85,496 85,512 Operating, general and administrative 21,568 19,178 17,946 17,161 Rent 911 881 723 707 Depreciation and amortization 2,436 2,340 2,089 1,948 Operating profit 2,085 3,436 3,576 3.137 Interest expense 601 522 482 488 Net earnings before income tax (benefit) expense 1,484 2,914 3,094 2,649 Provision for income taxes (405) 957 1,045 902 Net earnings including noncontrolling interests 1,889 1,957 2,049 1,747 Net earnings (loss) attributable to noncontrolling interests (18) (18) 10 19 Net earnings attributable to The Kroger Co. $ 1,907 $ 1,975 $ 2.039 $ 1,728 Source: The Kroger Company Form 10-Ks for the years presented.EXHIBIT 6.6 The Kroger Co. Comparative Balance Sheets February January January Jamary 3. 2018 28, 2017 30. 2016 31, 2015 Assels Current mascis! Cash and temporary cash investinc ath 177 268 Score deposits in transit .161 Receivables 1.637 1.649 1.266 FIFO inventory 2.852 7.440 6.933 LIFO Reserve (1.246) (1.191) (1.245) Assets hold for sale Prepaid and oilwi current mucha TOL Total current asusto 10,340 Property. plant and equipment. not 21.071 21.016 19.619 IT.912 LICO 1,151 1.053 Cloudwill 2915 2.724 2.304 Total assets $ 36,303 $39.897 5 30/197 Lishilinies and Shareholders' Equiry Current liabilities: Current portion of long term fehr including obligations back capital lenses and financing obligations $ 2.560 $ 2,252 $ 2370 8 1.874 Trade nocounts pomble 4,812 Acerned salaries and wages 1.314 1.420 1,291 Deferred Inonme LikeA T.inhilirian held for ands 250 Orher current lishilirigs 3,226 Total current BabiLikes 12.860 129TI 11.392 Long icom debi including obligations under capital leases and financing 12.029 11.823 9. 109 9.723 1.568 1.927 1.252 1.209 Pension and postivlineman Weight obligations 793 1.524 1.390 1.46.1 Other long term liabilities .7On 1.659 1.287 1.268 Tacal liabilities 90.292 29.794 27.099 25.055 Shareholders' Enquiry Common shares &l par per share 1.918 1.918 1.918 1.915 Additional paid-in capital MOTO 2.960 2.74 Accumulated other comprehensive 1471 (715) (8121 Accumulated earnings 17,007 15,543 14 011 12367 Common shares in treasury. at cost (14 054) ( 11,409 ) (10.809) "Total shareholders' equity-The Kroger Co. 5.931 6,695 6,820 5,412 Noncontrolling interests 13 1321 Total equity 6.905 6.795 5.443 Total liabilities and shareholders' equity $ 17.197 $ 36.505 $ 33597EXHIBIT 6.14 The Kroger Co. Return on Assets Fiscal Year: 2017 2016 2015 2014 February January January January (S in millions) Year Ended: 3, 2018 28, 2017 30, 2016 31, 2015 Net earnings including noncontrolling interests, as reported $ 1,889 $ 1,957 $ 2,049 $ 1,747 Less: Increase in earnings due to enactment of new tax law 902 Net earnings including noncontrolling interests, excluding effect of new tax law 987 1,957 2,049 1,747 Interest expense 601 522 482 488 * one minus marginal tax rate* 0.65 0.65 0.65 0.65 Interest expense (after-tax) 391 339 313 317 Earnings before interest (EBI) excluding effect of new tax law 1.378 2,296 2,362 2.064 Assets at end of year 37.197 36,505 33.897 30.497 Assets at beginning of year 36,505 33,897 30,497 29,281 Average assets 36,851 35,201 32,197 29,889 Return on assets ( EBI/Average assets) 3.7% 6.5% 7.3% 6.9% Source: Amounts derived from information in The Kroger Company's Form 10-Ks for the years presented.1. ROCE 2014 % 2. ROCE 2017 % 3. Did financial leverage help or hurt Kroger in fiscal 2017? Help
