Profitability Ratios: DuPont Model ROE: Residual Operating Income Model:

Return on Equity (ROE) Profit Margin (PM) Net Sales (NS)

(Net Income / Average Stockholders' Equity) (Net Income / Sales) Net Operating Profit After Taxes (NOPAT)
Net Operating Profit After Taxes (NOPAT) Asset Turnover (AT) (NOPBT - Tax on Operating Profit)
(NOPBT - Tax on Operating Profit) (Sales / Average Total Assets) Net Operating Assets (NOA)
Net Operating Assets (NOA) Return on Assets (ROA) (Operating Assets - Operating Liabilities)
(Operating Assets - Operating Liabilities) (PM X AT)
Return on Net Operating Assets (RNOA) Financial Leverage (FL) (NOPAT - (Beginning NOA X WACC)
(NOPAT / Average NOA) (Average Total Assets / Average Stockholders' Equity) Discount Factor (1/(1 + WACC)^T)
(PM X AT X FL) Present Value of Horizon ROPI
ROE Disaggregation:
Net Operating Profit Margin (NOPM) DuPont Model ROE Cumulative Present Value of Horizon ROPI
(NOPAT / Sales) Present Value of Terminal Value ROPI
Net Operating Asset Turnover (NOAT) Liquidity Ratios: Net Operating Assets (NOA)
(Sales / (Average NOA) Current Ratio Total Firm Value
Gross Profit Margin (GPM) (Current Assets / Current Liabilities)
(Gross Profit / Sales) Quick Ratio Less, Net Nonoperating Obligations (NNO)
Selling, General and Administrative Expense Margin (SGAM) (Quick Assets / Current Liabilities) Firm Equity Value
(SGA Expense / Sales)
Accounts Receivable Turnover (ART) Solvency Ratios: Shares Outstanding
(Sales / Average Accounts Receivable) Liabilities to Equity Stock Value, per Share
Inventory Turnover (INVT) (Total Liabilities / Total Equity)
(COGS / Average Inventory) Weighted Average Cost of Capital:
Property, Plant and Equipment Turnover (PPET) Z-Score Calculation: Cost of Equity
(Sales / Average PPE, Net) Working Capital (WC) (Re = Rf + B(Rm - Rf))
Total Asset Turnover (TAT) Total Assets (TA) 10-year Treasury Rate (Rf)
(Sales / Average Total Assets) Retained Earnings (RE) Beta (B)
Days Sales Outstanding (DSO) Earnings Before Interest and Taxes (EBIT) Spread (Rm - Rf)
(365 / ART) Market Value of Equity (MVE)
Inventory Days Outstanding (IDO) Total Liabilities (TL)
(365 . INVT) Net Sales (NS)
Z-Score
Nonoperating Return ROE: ([1.20 X (WC / TA)] + [1.40 X (RE / TA)] + [3.30 X (EBIT / TA)] +
Net Nonoperating Obligations (NNO) [0.60 X (MVE / TL)] + [0.99 X (NS / TA)])
(Nonoperating Liabilities - Nonoperating Assets)
Financial Leverage (FLEV) ROPI
(Average NNO / Average Equity) Reidual Operating Income valuation model
Net Nonoperating Expense (NNE) (NOPAT-(r
w
X NOA))
(NOPAT - Net Income)
Net Nonoperating Expense Percent (NNEP) FV = (NOA + Present Value of [NOPAT - (NOA
BEG
X r
w
)]
(NNE / Average NNO)
Spread
(RNOA - NNEP)
Return on Equity (ROE)
(RNOA + (FLEV X Spread)