Question

Compute the DuPont Disaggregation of ROE Refer to the balance sheets and income statement below for Facebook Inc. FACEBOOK INC. Consolidated Statement of Income For Year Ended December 31, $ millions 2018 Revenue $55,838 Costs and expenses Cost of revenue Research and development Marketing and sales General and administrative Total costs and expenses Income from operations Interest and other income (expense), net Income before provision for income taxes Provision for income taxes 9,355 10,273 7,846 3,451 30,925 24,913 448 25,361 3,249 Net income $22,112

Answer 1

a).

Calculation of ROE & ROA 1 ROE = (Net Income / Shareholder's Funds or Equity) = $22112 / [($84127 + $74347) / 2] 27.9% ROA = (Net Income / Avg. Total Assets) =22112/((97334+84524)/2) 24.3% Financial Leverage (FL) = Avg Assets /Avg Shareholder's Equity =90929/79237 1.148 Asset turnover = Sales / Avg Assets = $55838 / 90929 = 0.614 2 DuPont disaggregation into ROA and Financial Leverage =ROE=ROA*FL = 24.3%*1.148 27.90% 3 Profitability and Productivity components of ROA Profit Margin shows the Profitability of the Company. Profit Margin = Net Income / Sales = $22112 /55838 = 39.6% Assets Turnover shows productivity of the Company. Asset turnover = Sales / Avg Assets = $55838 / 90929 = 0.614 = 39.6%*0.614 24.3% 4 full DuPont disaggregation =ROE=PM*AT*FL = 39.6%*0.614*1.148 27.9% * Kindly Comment down for any clarifications/ queries and please upvote.

$=\frac{\$22112 }{(\$84127+\$74347)/2}=27.9\%$

$ROA=\frac{Net Income }{Avg.TotalAssets}$

$=\frac{22112}{(97334+84524)/2}=24.3\%$

$Financial Leverage (FL)=\frac{Avg Assets}{AvgShareholder'sEquity}=\frac{90929}{79237}=1.148$

$AssetsTurnover=\frac{Sales}{AvgAssets}=\frac{\$55838}{90929}=0.614$

b).

Dupont disaggregation into ROA and inancial Leverage=ROE=ROA*FL

=24.3%*1.148=27.90%

c).

Profitability and Productivity components of ROA

Profit Margin Shoes thee Profitability of the Company.

$Profit Margin=\frac{NetIncome}{Sales}=\frac{\$22112}{55838}=39.6\%$

AssetsTurnover shows productivity of the Company.

$Asset turnover=\frac{Sales}{AvgAssets}=\frac{\$55838}{90929}=0.614=39.6\%\times0.614=24.3\%$

d).

Full DUpont DIsaggregation

=ROE=PM*AT*FL

=39.6%*0.614*1.148

27.9%

Answer 2

Calculation of ROE & ROA 1 ROE = (Net Income / Shareholder's Funds or Equity) = $22112 / [($84127 + $74347) / 2] 27.9% ROA = (Net Income / Avg. Total Assets) =22112/((97334+84524)/2) 24.3% Financial Leverage (FL) = Avg Assets /Avg Shareholder's Equity =90929/79237 1.148 Asset turnover = Sales / Avg Assets = $55838 / 90929 = 0.614 2 DuPont disaggregation into ROA and Financial Leverage =ROE=ROA*FL = 24.3%*1.148 27.90% 3 Profitability and Productivity components of ROA Profit Margin shows the Profitability of the Company. Profit Margin = Net Income / Sales = $22112 /55838 = 39.6% Assets Turnover shows productivity of the Company. Asset turnover = Sales / Avg Assets = $55838 / 90929 = 0.614 = 39.6%*0.614 24.3% 4 full DuPont disaggregation =ROE=PM*AT*FL = 39.6%*0.614*1.148 27.9% * Kindly Comment down for any clarifications/ queries and please upvote.