Question

40,346 Compute ROE and RNOA with Disaggregation Selected balance sheet and income statement information for Home Depot follows. S millions Jan. 31, 2016 Feb. 01, 2015 Operating assets $40633 538.573 Nonoperating assets 2.266 1.773 Total assets 42.9.49 Operating abilities 15.043 13,552 Nonoperating liabilities 21.275 17,157 Total liabilities 36.318 30.709 Total stockholders' equity 9.637 Sales 89,234 Net operating profit before tax (NOPBT) 12.124 Nonoperting expense before tax 303 Tax expense 4,001 Net Income 7.320 6,631 Round answers to two decimal places (ex: 0.12345 - 12.35%) a. Compute return on equity. b. Compute return on net operating assets (RNOA). cUse ROE and RNOA to determine the nonoperating return for the year. d. Disaggregate RNOA into components of profitability and productivity and show that the product of the two components equals RNOA NOPM NOAT RNOA

Answer 1

2 a. return on equity net income average total stockholder's equity net income /average total shareholder's equity 7320 8134 (6631+9637)/2 ROE 89.99% return on net operating assets RNOA NOPAT tax % NOPBT income tax expense tax sheild net operating profit after tax laverage net operating assets NOPBT - (income tax expense + tax sheild on non operating expense) income tax expense /(tax + net income) * 100 35.34% 12124 4001 non operating expense * tax % 283.79 7839.21 NOPAT net operaating assets operating assets operating liabilities net operating assets 2016 average NOA NOA 2015 average NOA operating assets - operating liabilities 40683 15043 25640 (NOA 2016 + NOA 2015)/2 25021 25330.5 RNOA 30.95% non operating return ROE - RNOA 59.04% 32 d. NOPM revenue NOPM NOPAT / revenue 89234 8.79% NOAT NOAT RNOA revenue / vaerage net operating asset 3.52 NOPM * NOAT 30.95% hence nroved