Analysis and Interpretation of Ratios When RNOA Exceeds ROE Refer to the balance sheets and income...

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Analysis and Interpretation of Ratios When RNOA Exceeds 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 $55,838 Revenue Costs and expenses Cost of revenue 13,011 Research and development 10,273 Marketing and sales 7,846 General and administrative 3,451 Total costs and expenses 34,581 Income from operations 21,257 Interest and other income (expense), net 448 Income before provision for income taxes 21,705 Provision for income taxes 3,249 Net income $18,456 FACEBOOK INC. Consolidated Balance Sheet At December 31, $ millions 2018 2017 Current assets Cash and cash equivalents $10,019 $11,735 Marketable securities 34,751 33,632 Accounts receivable, net 11,243 9,488 Prepaid expenses and other current assets 1,779 1,020 Total current assets 57,792 55,875 Property and equipment, net 24,683 17,377 Intangible assets, net 1,294 5,540 Goodwill 21,957 18,221 Other assets Total assets Current liabilities 2,576 2,135 $108,302 $99,148 Accounts payable $820 $380 Partners payable 4,197 4,046 Accrued expenses and other current liabilities 5,509 6,548 Deferred revenue and deposits 147 98 Total current liabilities 10,673 11,072 Other liabilities 9,846 6,417 Total liabilities 20,519 17,489 Stockholders' equity Common stock and additional paid-in capital 46,562 47,896 Accumulated other comprehensive loss (760) (227) Retained earnings 41,981 33,990 Total stockholders' equity 87,783 81,659 Total liabilities and stockholders' equity Combined federal and state statutory tax rate $108,302 $99,148 22% a. Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%. Hint: Carefully consider whether nonoperating expense is positive or negative. NOPAT $ 16,930 x b. Compute net operating assets (NOA) for 2018 and 2017. Year 2018 S 2017 s NOA c. Compute RNOA and disaggregate it into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Revenue Numerator Numerator Revenue Numerator Revenue $ Revenue Denominator Denominator Revenue 1x S RNOA NOPM Denominator NOAT Revenue 1 x d. Compute return on equity (ROE) for 2018. Revenue S Numerator Denominator ROE = Revenue x 1x S 0x 100% 100% Analysis and Interpretation of Ratios When RNOA Exceeds 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 $55,838 Revenue Costs and expenses Cost of revenue 13,011 Research and development 10,273 Marketing and sales 7,846 General and administrative 3,451 Total costs and expenses 34,581 Income from operations 21,257 Interest and other income (expense), net 448 Income before provision for income taxes 21,705 Provision for income taxes 3,249 Net income $18,456 FACEBOOK INC. Consolidated Balance Sheet At December 31, $ millions 2018 2017 Current assets Cash and cash equivalents $10,019 $11,735 Marketable securities 34,751 33,632 Accounts receivable, net 11,243 9,488 Prepaid expenses and other current assets 1,779 1,020 Total current assets 57,792 55,875 Property and equipment, net 24,683 17,377 Intangible assets, net 1,294 5,540 Goodwill 21,957 18,221 Other assets Total assets Current liabilities 2,576 2,135 $108,302 $99,148 Accounts payable $820 $380 Partners payable 4,197 4,046 Accrued expenses and other current liabilities 5,509 6,548 Deferred revenue and deposits 147 98 Total current liabilities 10,673 11,072 Other liabilities 9,846 6,417 Total liabilities 20,519 17,489 Stockholders' equity Common stock and additional paid-in capital 46,562 47,896 Accumulated other comprehensive loss (760) (227) Retained earnings 41,981 33,990 Total stockholders' equity 87,783 81,659 Total liabilities and stockholders' equity Combined federal and state statutory tax rate $108,302 $99,148 22% a. Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%. Hint: Carefully consider whether nonoperating expense is positive or negative. NOPAT $ 16,930 x b. Compute net operating assets (NOA) for 2018 and 2017. Year 2018 S 2017 s NOA c. Compute RNOA and disaggregate it into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018. Revenue Numerator Numerator Revenue Numerator Revenue $ Revenue Denominator Denominator Revenue 1x S RNOA NOPM Denominator NOAT Revenue 1 x d. Compute return on equity (ROE) for 2018. Revenue S Numerator Denominator ROE = Revenue x 1x S 0x 100% 100%