This exercise is built around Krogers financial statements from the chapter. Total shareholders' equityThe Kroger Co. was $5,384 million at February 1, 2014. Refer to Exhibits 6.1, 6.6 and 6.14 from the chapter.

Required:

1. Kroger earned an ROA of 6.9% in fiscal 2014. What was ROCE that year? (Round your answer to 1 decimal place.)
2. 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.)
3. Did financial leverage help or hurt Kroger in fiscal 2017?

EXHIBIT 6.1 The Kroger Co. Comparative Income Statements \begin{tabular}{|c|c|c|c|c|} \hline \multirow[b]{2}{*}{\begin{tabular}{l} (S in \\ millions ) \end{tabular}} & \begin{tabular}{r} 2017 \\ (52 weeks) \\ February 3, \end{tabular} & \multirow{2}{*}{\begin{tabular}{r} 2016 \\ (53 weeks) \\ January \\ 28,2017 \end{tabular}} & \multirow{2}{*}{\begin{tabular}{c} 2015 \\ (52 weeks) (5 \\ January \\ 30,2016 \end{tabular}} & \multirow{2}{*}{\begin{tabular}{r} 2014 \\ 52 weeks) \\ January \\ 31,2015 \end{tabular}} \\ \hline & \begin{tabular}{r} February 3, \\ 2018 \end{tabular} & & & \\ \hline Sales & $122,662 & $115,337 & $109,830 & $108,465 \\ \hline \multicolumn{5}{|l|}{\begin{tabular}{l} Merchandise costs, including \\ advertising, warehousing, and \\ transportation, excluding items \end{tabular}} \\ \hline shown separately below & 95,662 & 89,502 & 85,496 & 85,512 \\ \hline Operating, general and administrative & 21,568 & 19,178 & 17,946 & 17,161 \\ \hline Rent & 911 & 881 & 723 & 707 \\ \hline Depreciation and amortization & 2,436 & 2,340 & 2,089 & 1,948 \\ \hline Operating profit & 2,085 & 3,436 & 3,576 & 3,137 \\ \hline Interest expense & 601 & 522 & 482 & 488 \\ \hline \begin{tabular}{l} Net earnings before income tax \\ (benefit) expense \end{tabular} & 1,484 & 2,914 & 3,094 & 2,649 \\ \hline Provision for income taxes & (405) & 957 & 1,045 & 902 \\ \hline \begin{tabular}{l} Net earnings including \\ noncontrolling interests \end{tabular} & 1,889 & 1,957 & 2,049 & 1,747 \\ \hline \begin{tabular}{l} Net earnings (loss) attributable to \\ noncontrolling interests \end{tabular} & (18) & (18) & 10 & 19 \\ \hline Net earnings attributable to The & & & & \\ \hline Kroger Co. & 1,907 & $1,975 & & 1,728 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline \multirow{2}{*}{\multicolumn{5}{|c|}{ Return on Assets }} \\ \hline & & & & \\ \hline \multirow[b]{2}{*}{ (S in millions) } & \multirow{2}{*}{\begin{tabular}{c} 2017 \\ February \\ 3, 2018 \end{tabular}} & \multirow{2}{*}{\begin{tabular}{c} 2016 \\ January \\ 28,2017 \end{tabular}} & \multirow{2}{*}{\begin{tabular}{c} 2015 \\ January \\ 30,2016 \end{tabular}} & \multirow{2}{*}{\begin{tabular}{c} 2014 \\ January \\ 31,2015 \end{tabular}} \\ \hline & & & & \\ \hline Net earnings including noncontrolling interests, as reported & $1,889 & $1,957 & $2,049 & $1,747 \\ \hline Less: Increase in earnings due to enactment of new tax law & 902 & & & \\ \hline Net earnings including noncontrolling interests, excluding & & & & \\ \hline effect of new tax law & 987 & 1,957 & 2,049 & 1,747 \\ \hline Interest expense & 601 & 522 & 482 & 488 \\ \hline one minus marginal tax rate & 0.65 & 0.65 & 0.65 & 0.65 \\ \hline Interest expense (after-tax) & 391 & 339 & 313 & 317 \\ \hline Earnings before interest (EBI) excluding effect of new tax law & 1,378 & 2,296 & 2,362 & 2,064 \\ \hline Assets at end of year & 37,197 & 36,505 & 33,897 & 30,497 \\ \hline Assets at beginning of year & 36,505 & 33,897 & 30,497 & 29,281 \\ \hline Average assets & 36,851 & 35,201 & 32,197 & 29,889 \\ \hline Return on assets (EBI/Average assets) & 3.7% & 6.5% & 7.3% & 6.9% \\ \hline \end{tabular}