Question

The Home Depot reported the following data (in millions) in its recent financial statements: Year 2 Year 1 Sales $75,480 $75,000 Total assets at the end of the year 42,800 46,000 Total assets at the beginning of the year 46,000 54,000 a. Determine the asset turnover for The Home Depot for Year 2 and Year 1. Round to one decimal place. Year 2 Year 1 b. What do these turnover indicate concerning the trend in the ability of The Home Depot to effectively use its assets to generate sales

Answer 1

Answer:

a. Year 1

Asset Turnover = Total sales/Average assets

= 75,000 / [(54,000 + 46,000)/2]

= 1.5

Year 2

= 75,480 / [(46,000 + 42,800)/2]

= 1.7

b. Effectiveness in the use of assets to generate revenue

A higher Asset turnover ratio means that the company is effectively using their assets to generate revenue. As there is no company listed to compare Home Depot to, it can be said that they are making effective use of their asset to generate revenue as they are making more revenue than the value of their assets.