Question

Selected income statement and balance sheet data from Merck & Co. f0or Year 9 are reproduced below:
MERCK & COMPANY, INC.
Year 9 Selected Financial Data ($ millions)
Income Statement Data
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,120
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650
Balance Sheet Data
Current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,850
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,250
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,290
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,860
Total liabilities & shareholders’ equity . . . . . . . . . . . . . . . . 7,250

Required:
a. Calculate return on common equity for Year 9 using year-end amounts and assuming no preferred dividends.
b. Disaggregate Merck’s ROCE into operating (RNOA) and nonoperating components. Comment on Merck’s use of leverage. (Assume all assets and current liabilities are operating and a 35% tax rate.)



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  • CreatedJanuary 22, 2015
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