Question

In its 2014 annual report, Campbell Soup Company reports beginning-of-the-year total assets of \(8,113 million, end-of-the-year total assets of \)8,323 million, total sales of \(8,268 million, and net income of \)807 million.

(a) Compute Campbell’s asset turnover.

(b) Compute Campbell’s profit margin on sales.

(c) Compute Campbell’s return on assets using

(1) asset turnover and profit margin and

(2) net income. (Round to two decimal places.)

Short answer

1. Asset turnover ratio = $1.006 times
2. Profit margin = $9.76%
3. Return on asset

1. Return on asset = 9.76%
2. Return on asset = 9.82%

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Depreciation

Depreciation is a branch of accounting that deals with systematically spreading or dividing the cost or other principal value of a fixed asset over its expected useful life by charging regular expenses or revenues.

(a) Computing Campbell’s asset turnover ratio

Calculating asset turnover ratio

$\begin{array}{c}\text{Asset\hspace{0.17em}turnover\hspace{0.17em}ratio}=\frac{\text{Net\hspace{0.17em}sales}}{\text{Average\hspace{0.17em}Total\hspace{0.17em}Asset}}\\ =\frac{\mathrm{\$}8,268}{\mathrm{\$}8,218}\\ =1.006\text{\hspace{0.17em}times}\end{array}$

(b) Computing Campbell’s profit margin on sales

Calculating profit margin on sales

$\begin{array}{c}\text{Profit\hspace{0.17em}margin=}\frac{\text{Net\hspace{0.17em}income}}{\text{Net\hspace{0.17em}sales}}\times 100\\ =\frac{\mathrm{\$}807}{\mathrm{\$}8,268}\times 100\\ =9.76\mathrm{\%}\end{array}$

(c 1) Computing Campbell’s return on assets using asset turnover and profit margin

Calculating return on asset

$$\begin{gathered} \text{Rate\hspace{0.17em}of\hspace{0.17em}return\hspace{0.17em}on\hspace{0.17em}asset}=\text{Asset\hspace{0.17em}turnover}\times \text{Profit\hspace{0.17em}margin\hspace{0.17em}on\hspace{0.17em}sales} \\ =1.006\times 9.76\mathrm{\%} \\ =9.82\mathrm{\%} \end{gathered}$$

(c 2) Computing Campbell’s return on assets net income

Calculating return on asset

$$\begin{gathered} \text{Rate\hspace{0.17em}of\hspace{0.17em}return\hspace{0.17em}on\hspace{0.17em}assets}=\frac{\text{Net\hspace{0.17em}income}}{\text{Average\hspace{0.17em}total\hspace{0.17em}assets}}\times 100 \\ =\frac{\mathrm{\$}807}{\mathrm{\$}8,218}\times 100 \\ =9.82\mathrm{\%} \end{gathered}$$