All assets are either operating or non-operating. Operating assets are used to generate sales while non-operating assets
Question:
All assets are either operating or non-operating. Operating assets are used to generate sales while non-operating assets
are typically excess monies that have not yet been invested in operating assets or excess cash that will be returned to the
bondholders and stockholders at some point in the future.
2.
Typical non-operating assets are excess cash or cash equivalents and investments. All other assets are typically
operating.
3.
Typical financing liabilities are current portion of long term debt, long term debt, and capitalized lease obligations. All
other liabilities including accounts payable, and accrued expenses are typically operating liabilities.
4.
Invested capital equals operating assets minus operating liabilities.
5.
Net non-operating assets or net liabilities equals non-operating assets minus non-operating liabilities.
Sample Balance Sheet:
Cash needed for operations
200
Accounts payable
300
Excess cash
600
Accrued expenses
250
Inventory
400
Current portion of Long term debt 150
Investment in marketable securities
300
Long term debt
1000
Plant property and Equipment
1100
Stockholders Equity
900
Total assets
2600
2600
What are the two financial assets?
What do they sum to?
What are the two financial liabilities?
What do they sum to?
What are the three operating assets?
What do they sum to?
What are the two operating liabilities?
What do they sum to?
Calculate the invested capital.
Calculate the net non-operating liability.
Please construct a balance sheet with invested capital on the left side and the sum of net non-operating liabilities and stockholders'
equity on the other, the balance sheet must balance.
Part 2 - The Income Statement
1.
As stated in part 1, all assets are either operating or non-operating -- so all revenues and expenses are also operating or
non-operating.
2.
Typical non-operating revenues are interest income earned on excess cash and on investments. Typical non-operating
expenses are interest paid on borrowed money (bonds issued by the corporation) and interest paid on leased assets.
3.
All other revenues and expense are typically operating.
4.
Net operating income less adjusted taxes (NOPLAT) equals operating revenues minus operating expenses and then minus
taxes.
Sample Income Statement:
Sales
+2500
Cost of goods sold
-1800
Selling and administrative
- 540
Interest received or earned
+ 20
Interest paid or expense
- 80
Pretax income
t
100
Taxes at 20%
20
Net income
80
Please take out the non-operating expenses and non-operating revenues and then calculate the pretax operating earnings?
Using a 20 percent tax rate, calculate the net operating profit less adjusted taxes or (NOPLAT)?
What is the pretax operating earnings?
Using a 20 percent tax rate, calculate the NOPLAT?
Part 3 - Merging the Balance Sheet and Income Statement to measure profitability
1.
Return on average invested capital (ROIC)
is what the company earned operating the business. It is computed by
taking the net operating profit less adjusted taxes (NOPLAT) and dividing by the average invested capital or (IC) (we do
not have beginning and ending number in this example so assume the number given is the average).
Using the invested capital from part 1 and the NOPLAT from part 2, please calculate the return on invested capital (ROIC)
Introduction To Health Care Management
ISBN: 9781284081015
3rd Edition
Authors: Sharon B. Buchbinder, Nancy H. Shanks