Year 2 Year 1
Net sales $67,997 $66,176
Total assets at the end of the year 40,125 40,877
Total assets at the beginning of the year 40,877 41,164
a. Determine the ratio of net 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:
a.
Year 2: 1.68 {$67,997 ÷ [($40,125 + $40,877) ÷ 2]}
Year 1: 1.61 {$66,176 ÷ [($40,877 + $41,164) ÷ 2]}
b. These analyses indicate an increase in the effectiveness in the use of the assets to generate profits. A comparison with similar companies or industry averages would be helpful in making a more definitive statement on the effectiveness of the use of the assets.