Question

Apply DuPont Disaggregation of ROE
Selected balance sheet and income statement information for Home Depot follows.

$ millions	Jan. 31, 2016	Feb. 01, 2015
Operating assets	$40,333	$38,223
Nonoperating assets	2,216	1,723
Total assets	42,549	39,946
Operating liabilities	14,918	13,427
Nonoperating liabilities	21,315	17,197
Total liabilities	36,233	30,624
Total stockholders' equity	6,316	9,322
Sales	88,519
Net operating profit before tax (NOPBT)	11,774
Nonoperting expense before tax	753
Tax expense	4,012
Net income	7,009

Round answers to two decimal places (ex: 0.12345 = 12.35%)

a. Compute ROE and disaggregate the ratio into its DuPont components of ROA and financial leverage.
ROE: Answer%
ROA: Answer%
Financial leverage: Answer

b. Disaggregate ROA in to profitability and productivity components.
Profit margin Answer%
Asset turnover Answer

Answer 1

Average shareholders equity = ($6,316 + $9,322) / 2

= $7,819

Average total assets = ($42,549 + $39,946) / 2

= $41,247.50

a.  

ROE = Net income / Average shareholders equity

= $7,009 / $7,819

= 89.64%

ROA = Net Income / Average total assets

= $7,009 / $41,247.50

= 16.99%

Financial leverage = (Average total assets) / (Average shareholders equity)

= $41,247.50 / $7,819

= 5.28%

b.

Profit margin = Net income / Sales

= $7,009 / $88,519

= 7.92%

Assets turnover = Sales / Average total assets

= $88,519 / $41,247.50

= 2.15