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Roe Net Income 7,009 Average Stockholders Equity 7,819
Roe Net Income 7,009 Average Stockholders Equity 7,819
Selected balance sheet and income statement information for Home Depot follows.
Total
stockholders' 6,316 9,322
equity
Sales 88,519
Net operating
profit before tax 11,774
(NOPBT)
Nonoperting
expense before 753
tax
Tax expense 4,012
Operating assets $40,333 $38,223 Round answers to two decimal places (ex: 0.12345 = 12.35%)
Nonoperating assets 2,216 1,723 a. Compute ROE and disaggregate the ratio into its DuPont components o
Total assets 42,549 39,946 ROE = ROA * FLEV
Sales 88,519
Net operating profit before tax (NOPBT) 11,774 b. Disaggregate ROA in to profitability and productivity components.
Nonoperting expense before tax 753 PM = Net Income
Tax expense 4,012 Sales
Net income 7,009
AT = Sales
Average Total Assets
0.12345 = 12.35%)
into its DuPont components of ROA and financial leverage.
= 89.64%
7,009
= = 16.99%
41,248
41,248
= = 5.28
7,819
roductivity components.
= 7,009
= 7.92%
88,519
88,519
= = 2.15
41,248
Compute Net Operating Assets
Selected balance sheet and income statement information for Home Depot follows.
$ millions Jan. 31, 2016 Feb. 01, 2015
Operating
$40,333 $38,223
assets Compute net operating assets for the years ended January 31, 2016 and February 1, 2015.
Nonoperating
assets
2,216 1,723 2016 NOA = Operating Assets - Operating Liabilities
Total assets 42,549 39,946 = $40,333 - $14,918
= $25,415
Operating 14,918 13,427
liabilities
Nonoperating
liabilities
21,315 17,197
2015 NOA = Operating Assets - Operating Liabilities
Total liabilities 36,233 30,624
= $38,223 - 13,427
= $24,796
Total
stockholders' 6,316 9,322
equity
Sales 88,519
Net operating
profit before 11,774
tax (NOPBT)
Nonoperting
expense before 753
tax
Tax expense 4,012
Operating
$40,333 $38,223
assets Compute net operating profit after tax for the year ended January 31, 2016. Assume a statutory tax rate o
Nonoperating
2,216 1,723
assets Round answer to the nearest whole number.
Total assets 42,549 39,946
Total
stockholders' 6,316 9,322
equity
Operating
assets
$40,333 $38,223 Round all answers to two decimal places (ex: 0.12345 = 12.35%)
Nonoperating
assets
2,216 1,723 a. Compute return on equity.
Total assets 42,549 39,946 ROE =
Sales 88,519
Net operating
profit before 11,774
tax (NOPBT) c. Use ROE and RNOA to determine the nonoperating return for the year.
Nonoperting
expense before 753
tax Nonoperating Return =
Tax expense 4,012
d. Disaggregate RNOA into components of profitability and productivity and show that th
NOPM =
NOAT =
RNOA =
g return for the year.
y and productivity and show that the product of the two components equals RNOA.
Compute and Interpret RNOA, Profit Margin, and Asset Turnover of Competitors
Selected balance sheet and income statement information for drug store retailers CVS Health Corp. and Walgreens Boots Alliance follows.
2015 Net 2014 Net
Company ($
Ticker 2015 Sales NOPAT Assets Assets
millions)
Walgreens
WBA 103,444 3,642 42,683 22,461
Boots Alliance
a. Compute the 2015 return on net operating assets (RNOA) for each company.
Round answers to two decimal places (ex: 0.12345 = 12.35%)
b. Disaggregate RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company.
Round answers to two decimal places (ex: 0.12345 = 12.35%)
Alliance follows.
Disaggregate Traditional DuPont ROE
Selected balance sheet and income statement information for Oracle Corporation follows. (Perform the required computation
$ millions 31-May-15 31-May-14
Operating $56,535 $51,447
assets a. Compute return on equity (ROE)
Total assets 110,903 90,266 b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage (FL).
Rouand answers to two decimal places (percentage ex: 0.12345 = 12.35%)
Operating 19,847 18,722
liabilities
Total Oracle
stockholders' 48,663 46,878
equity
Operating
income before 13,871
tax
Nonoperting
expense before 1,037
tax
Tax expense 2,896
Total Oracle
stockholders' 48,663 46,878
equity
Operating
income before 13,871
tax
Nonoperating
expense before 1,037
tax
Tax expense 2,896
b. Compute times interest earned and the liabilities-to-equity ratio for each year.
Round answers to two decimal places.
Analysis and Interpretation of Profitability
Balance sheets and income statements for Costco Wholesale Corporation follow.
Costco Wholesale Corporation
Consolidated Statements of Earnings
Assets
Current assets
Cash and cash equivalents $3,379 $4,801
Short-term investments 1,350 1,618
Receivables, net 1,252 1,224
Merchandise inventories 8,969 8,908
Equity
Preferred stock, $0.005 par value:
100,000,000 shares authorized; no shares
0 0
issued and outstanding
Common stock, $0.005 par value:
900,000,000 shares authorized;
437,524,000 and 437,952,000 shares issued
2 2
and outstanding
Additional paid-in-capital 5,490 5,218
Accumulated other comprehensive loss -1,099 -1,121
Nonoperating expense 53
Marginal tax rate 0.37
tax shield at 37% 19.61
(b) Compute net operating assets (NOA) for 2016 and 2015.
2016 NOA $12,764
2015 NOA $10,559
(c) Compute Costco’s RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOA
Nonoperating expense 53
Marginal tax rate 0.37
tax shield at 37% 19.61
(d) Compute net nonoperating obligations (NNO) for 2016 and 2015.
(e) Compute return on equity (ROE) for 2016. (Do not round until final answer. Round answer two decima
ROE 20.71%
(f) Infer the nonoperating return component of ROE for 2016. (Use answers from above to calculate. Roun
Nonoperting Return = ROE - RNOA 0.05%
(g) What does the relation between ROE and RNOA suggest about Costco's use of equity capital?
ROE > RNOA implies that Costco's equity has grown faster than its NOA.
ROE > RNOA implies that Costco has taken on too much financial leverage.
ROE > RNOA implies that Costco is able to borrow money to fund operating assets that yield a return grea
ROE > RNOA implies that Costco increased its financial leverage during the period.
e combined federal and state statutory tax rate is 37%. (Round to the nearest whole number.)
perating asset turnover (NOAT) for 2016. (Do not round until final answer. Round two decimal places. Do not use NOPM x NOA
r. Round answer two decimal places)
se of equity capital?
Assets
Current assets
Cash and cash equivalents $3,379 $4,801
Short-term investments 1,350 1,618
Receivables, net 1,252 1,224
Merchandise inventories 8,969 8,908
Equity
Preferred stock, $0.005 par value:
100,000,000 shares authorized; no shares issued and outstandi 0 0
Common stock, $0.005 par value:
900,000,000 shares authorized;
437,524,000 and 437,952,000 shares issued and outstanding 2 2
Additional paid-in-capital 5,490 5,218
Accumulated other comprehensive loss -1,099 -1,121
(b) Compute Costco’s times interest earned and its liabilities-to-equity ratios for 2016 and 2015. (Round an
2016 Times Interest 27.61
2015 Times Interest 29.23
(c) Which of the following statements best describes Costco's liquidity or solvency?
Costco's liabilities-to-equity ratio increased during 2016 thus its solvency has improved.
Costco's times interest earned is high thus there is concern for Costco's solvency.
Costco's quick and current ratios slightly increased therefore its liquidity has declined.
Costco's times interest earned ratio is high thus solvency is not a concern for Costco.
d answers two decimal places.)
improved.