Question

Compute RNOA with disaggregation.

Compute RNOA with Disaggregation Refer to the balance sheet information below for Home Depot. $ millions Feb. 3, 2019 Jan. 28, 2018 Operating assets $42,225 $40.934 Nonoperating assets 1,778 3,595 Total assets $44,003 $44,529 Operating liabilities $16,679 $16,047 Nonoperating liabilities 29,202 27,028 Total liabilities $45,881 $43,075 Net sales $108,203 Operating expense before tax 92,673 Net operating profit before tax (NOPBT) 15,530 Other expense 974 Income before tax 14,556 Tax expense Net income 3,435 $11,121 Round all answers to two decimal places (ex: 0.12345 = 12.35%) = %) a. Compute return on net operating assets (RNOA). 48.04 X % b. Disaggregate RNOA into components of profitability and productivity and show that the product of the two components equals RNOA. Assume a statutory tax rate of 22%. NOPM 4.29 X % NOAT 40.04 X Check

Answer 1

a.

Tax Rate = Tax Amount /Income before tax

=3435/ 14556 * 100

=23.60%

NOPAT= Operating Profit before tax * (1-tax rate)

=15530 * (1- 0.2360)

=11864.92

RNOA = NOPAT / Average net operating assets

= 11864.92 / {(42225-16679)+(40934-16047)/2}

=11864.92 /{(25546)+(24887)/2}

=11864.92 /{50433/2}

=11864.92 / 25216.5

=0.4705 or 47.05%

b.

NOPM = NOPAT/Sales

=11864.92 / 108203 *100

=10.97%

NOAT= Sales / Average Net Operating Assets

= 108203/{(42225-16679)+(40934-16047)/2}

= 108203/25216.5

=4.29

RNOA= NOPM * NOAT

=10.97%*4.29

=47.05% [approx]

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