Question

CLICK HERE TO REVIEW LEARNING OBJECTIVES 2 Not complete Marked out of 5.00 F Flag question Compute, Disaggregate and Interpret ROE and ROA Selected balance sheet and income statement information from Staples, Inc., follows ($ millions). Sales Interest expense Net income Total Assets Stockholders' Equity 2014 $22,492 2014 2014 2014 2013 2014 2013 $49 $135 $10,314 $11,175 $5,313 $6,141 a. Compute the 2014 return on equity (ROE), return on assets (ROA), and return on financial leverage (ROFL) Round answers to one decimal place (ie.. 0.2568-25.7%). Do not round until your final answer. ROE ROA ROFL b. Disaggregate ROA into profit margin (PM) and asset turnover (AT Round answers to one decimal place (i.e., 0.2568-25.7%). Do not round until your final answer. PM AT Check

Answer 1

Please provide rating..

Answer a)
	ROE = net income/Average equity
	ROE =	=135/((5313+6141)/2)
	ROE =	2.4%
	ROA = Net income/Average Asset
	ROA=	=135/((10314+11175)/2)
	ROA=	1.3%
	ROFL = Net income before interest and taxes/(Average Debt)
	we have to compute the averate debt and net income before interest and taxes
	Net income before interest and tax = Net income + interest expenses
				=135+149
				284	mil
	** its assumed that we don thave any tax
	Computation of average debt
		Year	2013	2014
	i	Total asset	11175	10314
	ii	Total equity	6141	5313
	iii=i-ii	Debt	5034	5001
	Average debt =	=(5034+5001)/2		5017.50	mil
	ROFL =	=284/5017.5		5.7%
Answer b)
	PM = Profit margin = Net income/ Total sales =
			=135/22492
			0.6%
	AT = Asset turnover = Total sales/ Average asset
			=22492/((10314+11175)/2)
			2.09
	Prof = We have computed above ROA = 1.3%
	If we multiply PM and AT ratio we will get ROA
	See below -
	PM*AT = 0.6%*2.09		1.3%	Which is exactly same as ROA