Exam 4: Analyzing and Interpreting Financial Statements

ROE is computed as:

Use the following income statement for Mattel Inc. ($ thousands) to compute the following: a. Tax shield b. Taxes on operating profit c. Tax rate on operating profit The company's statutory tax rate is 37%.

Selected balance sheet and income statement data follow for Goodyear Tire & Rubber Company for the year ended December 31, 2016 (in millions). Use the data to calculate the company's current ratio and liabilities-to-equity ratio.

All else equal, when investors consider a firm's return on equity (ROE) they consider less risky a firm that earns proportionately more of that return from operating activities as opposed to nonoperating activities.

The 2016 financial statements of The New York Times Company reveal average shareholders' equity attributable to controlling interest of $837,283 thousand, net operating profit after tax of $48,032 thousand, net income attributable to The New York Times Company of $29,068 thousand, and average net operating assets of $354,414 thousand. The company's return on equity (ROE) for the year is:

The fiscal 2016 financial statements of Nike Inc. shows average net operating assets (NOA) of $8,450 million, average net nonoperating obligations (NNO) of $(4,033) million, average total liabilities of $9,014 million, and average equity of $12,483 million. The company's 2016 financial leverage (FLEV) is:

Income statements and balance sheets follow for Snap-On Incorporated. Refer to these financial statements to answer the requirements. Required: a. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rate is 37% for both fiscal years. b. Compute net operating assets (NOA) for 2016 and 2015. c. Compute return on net operating assets (RNOA) for 2016 and 2015. Comment on the year-over-year change. Net operating assets are $3,011.7 million in 2014. d. Disaggregate RNOA into profitability and asset turnover components (NOPM and NOAT, respectively). Remember to include both net sales and financial services revenue in total revenue. What explains the year-over-year change in RNOA?

Use the income statement for Microsoft Corporation to compute the following: a. Tax shield b. The tax on operating profit c. NOPAT The company's combined federal and state statutory tax rate is 37.0%.

Income statements and balance sheets follow for Microsoft Corporation. Refer to these financial statements to answer the requirements. Required: a. Compute net nonoperating expenses (NNE) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for both years. b. Compute net nonoperating obligations (NNO) for 2016 and 2015. c. Compute Spread for 2016 and 2015. Return on net operating assets (RNOA) is 109.1% and 52.6% in 2016 and 2015, respectively. NNO were $(63,064) million in 2014. d. Compute FLEV for 2016 and 2015. In 2014, net nonoperating obligations (assets) were $(63,064) million and shareholders' equity was $89,784 million. e. Calculate return on equity (ROE) for both years. Show that ROE = RNOA + (FLEV × Spread). Interpret the year-over-year change in ROE.

Use the following balance sheets and income statements for Valero Energy Corporation to answer the requirements. Required: a. Compute Valero's return on equity (ROE) for 2016 and 2015. Valero Energy stockholders' equity in 2014 was $20,677 million. b. Compute the profit margin (PM), asset turnover (AT), and financial leverage (FL) components of the basic DuPont model. Show that ROE = PM × AT × FL for 2016. Total assets were $45,550 million in 2014. Which component(s) explain the year over year change in Valero's ROE? c. Compute adjusted return on assets (ROA) for 2016 and 2015. Assume a tax rate of 37% for both years.

Selected balance sheet and income statement data follow for E.I. DuPont de Nemours and Company (in millions). Use the data to calculate the following: a. Return on equity (ROE) b. Return on net operating assets (RNOA) c. The company's nonoperating return

Use the following selected balance sheet and income statement data for Mattel Inc. (in $ thousands) to compute a) return on equity, b) profit margin (PM), c) asset turnover (AT), and d) financial leverage (FL) for fiscal 2016. Show that ROE = PM × AT × FL.

Explain how return on net operating assets (RNOA) and financial leverage (FLEV) affect Return on Equity (ROE). Is greater FLEV always better?

Income statements and balance sheets follow for Microsoft Corporation. Refer to these financial statements to answer the requirements. Required: a. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for both years. b. Compute net operating assets (NOA) for 2016 and 2015. Assume Equity and other investments are operating assets. c. Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $26,720 million in 2014. d. Compute return on equity (ROE) for 2016 and 2015. (Stockholders' equity in 2014 is $89,784 million.) e. What is nonoperating return component of ROE for 2016 and 2015? f. Comment on the difference between ROE and RNOA. What inference do you draw from this comparison

The fiscal 2016 financial statements of Nike Inc. shows net operating profit margin (NOPM) of 11.4%, net operating asset turnover (NOAT) of 3.83, return on equity of 30.1%, and adjusted return on assets of 17.1%. What is the company's nonoperating return?

Net operating asset turnover (NOAT) measures a company's profitability.

Increasing a company's net operating asset turnover (NOAT) increases both RNOA and ROE.

Selected ratios follow for Nike, Inc. for the year ended December 31, 2016 (in millions). What is the company's return on equity (ROE) for the year?

Selected income statement and balance sheet data follow for Snap-On Incorporated for fiscal 2016 and 2015. Use these data to calculate a) FLEV, b) spread, and c) return on equity (ROE) for fiscal 2016 only.

Net operating profit after tax (NOPAT) includes operating revenues less expenses such as: