Compute the DuPont Disaggregation of ROERefer to the balance sheets and income statement below for Facebook Inc.FACEBOOK INC.Consolidated Statement of IncomeFor Year Ended December 31, $ millions2018Revenue$56,894Costs and expenses Cost of revenue10,411Research and development11,329Marketing and sales7,846General and administrative4,507Total costs and expenses34,093Income from operations22,801Interest and other income (expense), net1,504Income before provision for income taxes24,305Provision for income taxes3,249Net income$21,056 FACEBOOK INC.Consolidated Balance SheetAt December 31, $ millions20182017Current assets Cash and cash equivalents$11,075$8,079Marketable securities31,09534,688Accounts receivable, net8,6435,832Prepaid expenses and other current assets1,7791,020Total current assets52,59249,619Property and equipment, net24,68314,777Intangible assets, net1,2941,884Goodwill19,35719,277Other assets2,5762,135Total assets$100,502$87,692Current liabilities Accounts payable$820$380Partners payable1,5971,446Accrued expenses and other current liabilities5,5092,892Deferred revenue and deposits1,20398Total current liabilities9,1293,760Other liabilities6,1906,417Total liabilities15,31910,177Stockholders' equity Common stock and additional paid-in capital42,90642,696Accumulated other comprehensive loss(760)(227)Retained earnings43,03735,046Total stockholders' equity85,18377,515Total liabilities and stockholders' equity$100,502$87,692 a. Compute return on equity (ROE). NumeratorDenominatorROE AnswerAnswer AnswerAnswer b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage. NumeratorDenominatorROA AnswerAnswer AnswerAnswer NumeratorDenominatorFL AnswerAnswer AnswerAnswer RatioNumber ROAAnswer FLAnswer ROE ***ROE may be different from ROE calculation in part a due to roundingc. Calculate the profitability and productivity components of ROA. NumeratorDenominatorPM AnswerAnswer AnswerAnswer NumeratorDenominatorAT AnswerAnswer AnswerAnswer d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL. RatioNumber PMAnswer ATAnswer FLAnswer ROE

In 2018 given PAT=21056 Shareholders' Equity =85,183 So RoE =21056/85183=0.2472=24.72% b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage. (Note Dupont considers only the assets of the relevant period) Sometimes even Average assets can be also used ROA = PAT / Average Assets = 21056/ 100502=0.2059=20.95% Financial Leverage Leverage (a/c Dupont) FL =Total Assets/ Shareholdrers Equity=100502/85,183/= 1.18 c. Calculate the profitability and productivity components of ROA. NPM= 21056 /56894= 0.37 Productivity Total Assets Turnover Ratio TATR= Sales / Total Assets=56894/100,502= 0.5661=56.61% d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL. According to DuPont = RoE = NPM*TATR*Fl=0.37*0.5661 * 1.18= 24.72% As witnessed in the answer a Proved

Answered: nt Disaggregation of ROE Refer to the…

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

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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	$56,894
Costs and expenses
Cost of revenue	10,411
Research and development	11,329
Marketing and sales	7,846
General and administrative	4,507
Total costs and expenses	34,093
Income from operations	22,801
Interest and other income (expense), net	1,504
Income before provision for income taxes	24,305
Provision for income taxes	3,249
Net income	$21,056

FACEBOOK INC.
Consolidated Balance Sheet
At December 31, $ millions	2018	2017
Current assets
Cash and cash equivalents	$11,075	$8,079
Marketable securities	31,095	34,688
Accounts receivable, net	8,643	5,832
Prepaid expenses and other current assets	1,779	1,020
Total current assets	52,592	49,619
Property and equipment, net	24,683	14,777
Intangible assets, net	1,294	1,884
Goodwill	19,357	19,277
Other assets	2,576	2,135
Total assets	$100,502	$87,692
Current liabilities
Accounts payable	$820	$380
Partners payable	1,597	1,446
Accrued expenses and other current liabilities	5,509	2,892
Deferred revenue and deposits	1,203	98
Total current liabilities	9,129	3,760
Other liabilities	6,190	6,417
Total liabilities	15,319	10,177
Stockholders' equity
Common stock and additional paid-in capital	42,906	42,696
Accumulated other comprehensive loss	(760)	(227)
Retained earnings	43,037	35,046
Total stockholders' equity	85,183	77,515
Total liabilities and stockholders' equity	$100,502	$87,692

a. Compute return on equity (ROE).

	Numerator	Denominator	ROE
	Answer	Answer
	Answer	Answer

b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage.

	Numerator	Denominator	ROA
	Answer	Answer
	Answer	Answer

	Numerator	Denominator	FL
	Answer	Answer
	Answer	Answer

	Ratio	Number
	ROA	Answer
	FL	Answer
	ROE

***ROE may be different from ROE calculation in part a due to rounding

c. Calculate the profitability and productivity components of ROA.

	Numerator	Denominator	PM
	Answer	Answer
	Answer	Answer

	Numerator	Denominator	AT
	Answer	Answer
	Answer	Answer

d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL.

	Ratio	Number
	PM	Answer
	AT	Answer
	FL	Answer
	ROE

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nt Disaggregation of ROE Refer to the balance sheets and income statement below for Facebook Inc. FACEBOOK INC.