ating performance ratios. These ratios typically link income statement line items to sales. Through our analysis of the operating performance ratios of Toys R we have confirmed our assumption that their overall business operations are starting to improve. This is because all three of the operating performance ratios are above the industry average and have been increasing significantly since 1999. We contribute the increase in these ratios to the reduction in the firms’ cost of goods sold. Because of the reduction in cost of goods sold gross profit has increased by more than 18% when compared to fiscal year 1999. This increase is an indicator that Toys R Us has reevaluated the overall business operations to produce significant earnings to their shareholders.Return on Investment Jan-01Jan-00Jan-99Jan-98Jan-97IndustryReturn on Assets (ROA)6.66%5.4%0.005%6.81%7.31%2.50%Return on Common Equity (ROCE)15.36%12%1.0%11.69%12.45%6.00%Financial Leverage Index (ROCE/ROA)2.302.2221.7171.703N/AEquity Growth Rate15.36%12%1.0%11.69%12.45%N/ADisaggeration of Return on Common Equity15.26%12.01%2.78%11.23%10.18%N/AAdjusted Profit Margin4.81%3.69%.0004%4.40%4.30%N/AAsset Turnover1.38%1.46%1.41%1.38%1.24%N/AFinancial Leverage Ratio2.30%2.23%1.97%1.85%1.91%N/AReturn on investment ratios are an important indicator of a company’s long-term financial strength. Through our analysis of these ratios we have determined that Toys R Us is utilizing their total assets and common equity effectively. They are producing significant returns when compared to the industry average. One of the better ratios we have seen during our analysis of Toys R Us is the equity growth rate. This ratio tells us the firm’s ability to grow without increasing its current level of financing. The equity growth rate has been increasing by over 25% since 1999. This is an indicator that Toys R Us will not have to depend so heavily on external financing to run their bu...
