The Home Depot reported the following data (in millions) in its recent financial statements:
Year 2 | Year 1
Sales $83,176 | $78,812
Total assets at the end of the year 39,946 | 40,518
Total assets at the beginning of the year 40,518 | 41,084
a. Determine the asset turnover for The Home Depot for Year 2 and Year 1. Round to two decimal places.
b. What conclusions can be drawn concerning the trend in the ability of The Home Depot to effectively use its assets to generate sales?
Answer:
a. Year 2: 2.07 {$83,176 ÷ [($39,946 + $40,518) ÷ 2]}
Year 1: 1.93 {$78,812 ÷ [($40,518 + $41,084) ÷ 2]}
b. These analyses indicate a slight 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.