Using the Annual Report of your selected company answer the following questions

Question

Using the Annual Report of your selected company answer the following questions in the Discussion:

What depreciation method does the company use for reporting in its financial statements? Why do you think they chose this method?

What was the amount of depreciation and amortization for the year end?

Compute the asset turnover ratio for the year end.

How does this ratio compare to the industry ratio? What does this tell you about the company?

What classifications of debt and/or equity security investments does the company hold?

How are the company's available-for-sale investments reported? How are the company's trading investments reported?

BEST BUY

https://finance.yahoo.com/quote/BBY/financials?p=BBY

Explanation / Answer

1. Best Buy use the straight line method of depreciation for reporting in its financial statements. They choose this method because this method is easy to apply and there is consistency in the amount of depreciation calculated in this method.

2. Amount of depreciation and amortization for the year end Jan.28, 2017 is $654 million.

3. Asset turnover ratio = Sales / Average Assets
Average assets = (13,856 + 13,519) / 2 = $13,687.50
Sales = $39,403
Asset turnover ratio = 39,403 / 13,687.50 = 2.88 times

4. Asset turnover ratio of the Industry is 3.10 times which is higher than asset turnover ratio of Best Buy. Asset turnover ratio shows a company’s efficiency in utilization of its assets for the generation of revenue. A higher ratio is always desirable because this means company has been operating efficiently. Asset turnover ratio of Best Buy is lower than industry average which means company has lower operating efficiency than its competitors so there is scope for the company to improve its operating efficiency.

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