ICPenney operates a chain of retail department stores, selling apparel, shoes, jewelry, and home furnishings. It also
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a. Calculate the rate of return on assets for fiscal Year 3, Year 4, and Year 5. Disaggregate ROA into the profit margin for ROA and total assets turnover components. The income tax rate is 35 percent.
b. Calculate the rate of return on common shareholders' equity for fiscal Year 3, Year 4, and Year 5. Disaggregate ROCE into the profit margin for ROCE, total assets turnover, and capital structure leverage components.
c. Suggest reasons for the changes in ROCE over the three years.
d. Compute the ratio of ROCE to ROA for each year.
e. Calculate the amount of net income available to common stockholders derived from the use of financial leverage with respect to creditors' capital, the amount derived from the use of preferred shareholders' capital, and the amount derived from common shareholders' capital for each year.
f. Did financial leverage work to the advantage of the common shareholders in each of the three years? Explain.
Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
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Related Book For
Financial Reporting Financial Statement Analysis and Valuation
ISBN: 978-0324302950
6th edition
Authors: Clyde P. Stickney
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