a. Compute profitability measures: RNOA, ROA and ROE for 2019 and 2018 using the numbers as reported by the company. Note: Round answers to one decimal place (ex: 0.2345 = 23.5%).
a. Compute profitability measures: RNOA, ROA and ROE for 2019 and 2018 using the numbers as reported by the company. Note: Round answers to one decimal place (ex: 0.2345 = 23.5%).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Transcribed Image Text:Selected balance sheet and income statement information from Illinois Tool Works follows.
$ millions
Net operating profit after tax (NOPAT) $2,897 $3,009
Net income
2,798 2,845
Total assets
15,671 15,465 $17,451
Equity
3,147 3,384 3,384
10,493
Net operating profit after tax (NOA)
9,224 9,840
Treasury stock
21,070 19,475 17,274
a. Compute profitability measures: RNOA, ROA and ROE for 2019 and 2018 using the numbers as reported by the company.
Note: Round answers to one decimal place (ex: 0.2345 = 23.5%).
Metric
RNOA
ROA
ROE
2019
30.4 %
17.9 % ✓
88.91 % *
$ millions
Assets, restated $
Equity, restated
b. Adjust equity and total assets for the amount of treasury stock.
2019
2018
34,940 $
36,741 $
24,217 ✔ $
22,859 $
2019
2018
30.4 %
8.08 % *
2019 2018 2017
11.89%
29.6 %
18.28 % *
84.1 % ✔
Using these restated numbers, recompute RNOA, ROA and ROE for both years.
Note: Round answers to one decimal place (ex: 0.2345 = 23.5%).
Metric
RNOA
ROA
ROE
2018
2017
29.6 %
8.64 % *
13.08% ✔
34,725
20,658
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