IN-CLASS ACTIVITY

Chapter 8 – Financial Strategy

Name(S): DILPREET KAUR

1. In class we discussed two different path’s to increase ROA, the profit path and the
turnover path. Provide an explanation of the two paths. As part of your explanation
provide ratios that are important for each.
 The business's remaining profits after all costs have been deducted from sales de
termine the profit path. The level of influence they have over variable costs co
mpletely depends on the general mood. This profit may be a net profit or a g
ross profit.

Turnover is the top line of an income statement that shows the total sales rev
enue that the company will generate over a certain period of time. Turnover i
s the net sales generated by the business that are independent of profits. Th
e turnover but is the overall revenue for the company or the amount of net s
ales.
2. Identify 2 retailers who likely focus on the profit path and two retailers who likely
concentrate on the turnover path, justify your answer

 Mercedes-Benz and Apple are likely the retailers who concentrate on the profit
path because they concentrate on the profit road with the quality product that
consumes a higher percentage of profit for each and every product they introduce.
The merchants with the highest turnover rates are Google and Amazon, who focus
on the total turnover of the company through a variety of items with fluctuating
costs for the goods and services they provide.

3. Claudia's Gems had net sales of $220,000, total assets of $390,000, total liabilities of
$109,000, a cost of goods sold of $69,000, expenses of $82,000, and net profit after taxes
of $29,000. Calculate the store's return on assets ratio. Provide an explanation of what
this number represents and why is it important for retailers

 ROA = (Net Income / Average Total Assets)* 100

Net Income = Net Sales – cost of goods sold – Expenses – Net profit after taxes
Average total assets = Total assets + Total liabilities

ROA = (220000 – 69000 – 82000 – 29000 / 309000 + 109000) * 100

ROA = 8%

Hence, Claudia James' return on assets ratio is 8%; this figure is crucial for
retailers because a good return of more than 5% would depend on net income
relative to total assets and by disclosing the company's performance.