Question

QUESTION 7 Answer saved Marked out of 3.00 PFlag question Compare GAAP and non-GAAP Measures FedEx Corporation reported the following in its 2016 earnings release Dollars in millions, except EPS on-GAAP measure Mark-to-market pension accounting adjustments TNT expenses and operating results Tax impact-corporate restructuring for TNT integration FedEx Ground legal matters FedEx Trade Networks legal matter GAAP measure Net income $3,016 (946) (125) 76 (158) (43) $1,820 Diluted EPS $10.80 (3.39) (0.45) 0.27 (0.57) (0.15) $6.51 What amount did FedEx report as net income on its 2016 income statement? million The company's average equity was $14,389 million in 2016. Compute its return on equity using (i) the GAAP net income, and (ii) the non-GAAP net income Round answers to one decimal place (ex: 0.2345 23.5%) GAAP Non-GAAP ROE 0% 096

Answer 1

Comparing GAAP and non-GAAP measures from FedEx Corporation 2016 earning release.

The Generally Accepted Accounting Principles(GAAP) developed by Financial Accounting and Standard Board to provide standard set of rules for providing uniform financial reporting. However at instances companies uses their own accounting calculations to adjust figures by excluding non-cash expenses such as depreciation and amortization under non-GAAP measures.

FedEx Corporation has reported $1820 million as net income on its 2016 Income statement.

Given information- FedEx Corporation's average shareholder equity was $14389 million in the year 2016. We can calculate FedEx Corporation return on equity (ROE) by following information given in the table.

Average Shareholder Equity in 2016	Net income as per GAAP measures in 2016	Net Income as per Non-GAAP measures in 2016
$14389 millions	$1820 millions	$3016 millions

Calculation of Return on Equity (ROE) = Net Income/ Shareholder's Equity

(i) Computation of FedEx Corporation return on equity using GAAP net income i.e. ROE= $1820/$14389*100 equals to 12.6%

(ii) Computation of company's return on equity using Non-GAAP measures = $3016/$14389*100 equals to 20.9%

Measures	GAAP	Non-GAAP
Return on Equity(ROE)	12.6%	20.9%

As clearly seen, Return on Equity using Non-GAAP measures is more than GAAP measures by 8.3% (20.9%-12.6%). There is significance increase in return on equity because Non-GAAP measures exclude non-cash or irregular expenses for adjustments.