Response to the following problem:
Fixed-asset turnover ratio; Pier 1 Imports, Inc.
Pier 1 Imports, Inc., is a leading retailer of domestic merchandise and home furnishings. The company's 2014 fixed-asset turnover ratio, using the average book value of property, plant, and equipment (PP&E) as the denominator, was approximately 10.61. Additional information taken from the company's 2014 annual report is as follows:
($ in thousands)
Book value of PP&E-beginning of 2014 $150,615
Purchases of PP&E during 2014 80,306
Depreciation of PP&E for 2014 38,873
Equipment having a book value of $8,696 thousand was sold during 2014.
Required:
1. How is the fixed-asset turnover ratio computed? How would you interpret Pier 1's ratio of 10.61?
2. Use the data to determine Pier 1's net sales for 2014.
3. Obtain annual reports from three corporations in the same primary industry as Pier 1 Imports, Inc. (Bed Bath & Beyond and Williams-Sonoma, Inc., are two well-known companies in the same industry) and compare the management of each company's investment in property, plant, and equipment.