Compute Valero's return on equity (ROE) for 20X3 and 20X2. Valero Energy stockholders' equity in 20X1 was $20,677 million.

Compute the profit margin (PM), asset turnover (AT), and financial leverage (FL) components of the basic DuPont model. Show that ROE = PM × AT × FL for 20X3. Total assets were $45,550 million in 20X1. Which component(s) explain the year over year change in Valero's ROE?

Use the following balance sheet and income statement for Valero Energy Corporation to answer the requirements .

Operating revenues	$ 75,659	$ 87,804
Costs and expenses:
Cost of sales	65,962	73,861
Refining expenses	(747)	790
Retail expenses	4,207	4,243
Ethanol expenses	715	710
General and administrative expenses	1,894	1,842
Depreciation and amortization expense	56	0
Asset impairment losses
Total costs and expenses	72,087	81,446
Operating income	3,572	6,358
Other income, net	56	46
Interest and debt expense	(446)	(433)
Income from continuing operations before income tax expense	3,182	5,971
Income tax expense	765	1,870
Net income (loss)	2,417	4,101
Less: Net income (loss) attributable to noncontrolling interests	128	111
Net income attributable to Valero Energy stockholders	2,289	3,990

  

Valero Energy Corporation and Subsidiaries Consolidated Balance Sheets
(Millions of Dollars)	20X3	20X2
Cash and temporary cash investments	$ 4,816	$ 4,114
Receivables, net	5,901	4,464
Inventories	5,709	5,898
Income taxes receivable	58	218
Prepaid expenses and other	316	204
Total current assets	16,800	14,898
Property, plant and equipment, net	26,472	26,703
Deferred charges and other assets, net	2,901	2,626
Total assets	46,173	44,227
Current portion of debt and capital lease obligations	115	127
Accounts payable	6,357	4,907
Accrued expenses	694	554
Taxes other than income taxes	1,084	1,069
Income taxes payable	78	337
Total current liabilities	8,328	6,994
Debt and capital lease obligations, less current portion	7,886	7,208
Deferred income taxes	7,361	7,060
Other long-term liabilities	1,744	1,611
Total liabilities	25,319	22,873
Common stock	7	7
Additional paid-in capital	7,088	7,064
Treasury stock	(12,027)	(10,799)
Retained earnings	26,366	25,188
Accumulated other comprehensive income (loss)	(1,410)	(933)
Total Valero Energy stockholders' equity	20,024	20,527
Noncontrolling interest	830	827
Total equity	20,854	21,354
Total liabilities and stockholders' equity	$ 46,173	$ 44,227

Answer rating: 100% (QA)

SOLUTION To compute Valeros return on equity ROE for 20X3 and 20X2 we need to use the following formula ROE Profit Margin Asset Turnover Financial Leverage First lets calculate the profit margin PM fo... View the full answer