Two of the largest chains grocery stores in the United States are Albertson’s, Inc., and the Great..

Two of the largest chains grocery stores in the United States are Albertson’s, Inc., and the Great Atlantic & Pacific Tea Company (A&P). In a recent fiscal year, Albertson’s had a net income of $765 million, and A&P had a net income of $14 million. It is difficult to judge which company is more profitable from those figures alone because they do not take into account the relative sales, size, and investments of the companies. Data (in millions) needed to complete a financial analysis of the two companies follow. 1. Determine which company was more profitable by computing profit margin, asset turnover, return on assets, debt to equity ratio, and return on equity for the two companies. Comment on the relative profitability of the two companies. 2. What do the ratios tell you about the factors that go into achieving an adequate return on assets in the grocery industry? For industry data, refer to figure through in this chapter. 3. How would you characterize the use of debt financing in the grocery industry and the use of debt by these twocompanies?

 

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