The Home Depot reported the following data (in millions) in its recent financial

Question:

The Home Depot reported the following data (in millions) in its recent financial statements:

year 2year 1
sales$70,395$67,977
Total assets at the end of the year40,51840,125
Total assets at the beggining of the year40,12540,877

(a) Determine the ratio of sales to assets for The Home Depot for Year 2 and Year 1. Round to two decimal places.

(b) What conclusions can be drawn from these ratios concerning the trend in the ability of The Home Depot to effectively use its assets to generate sales?

Answer:

ParticularsYear 1Year 2
Sales67,97770,395
Average Assets(Beginning+Closing/2)40,50140321.5
Sales to Assets Ratio(Sales/Average Assets)1.681.75

b) Since the sales to assets ratio are increased from year 1 to year 2, the company has an increase of Ratio by 0.75 times but the average of assets has decreased, so it can be concluded that the company has increased the sales to the turnover ratio by increasing the sales in the next year.

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