For the year ended 30 June 2023, Spring Ltd had a return on equity (ROE) of...

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For the year ended 30 June 2023, Spring Ltd had a return on equity (ROE) of 6.83 percent while Summer Ltd's ROE was 5.83 percent. The following data from the financial statements are available to a financial analyst: NOPAT margin Sales/Net operating assets Effective after-tax interest rate Net debt Spring Ltd The analyst has developed the following forecasts for the key financial metrics of financial statements for Spring Ltd. Her points of reference in developing these forecasts were the reported numbers from financial statements in the last two (2) years, 2022 and 2023. Sales growth NOPAT margin Working capital to sales Net long-term assets to sales Effective after-tax interest rate Net debt Actual 2022 Spring 2023 13% 0.50 6% 0.65 1% 12% 50% 150% 5% 0.70 Summer 2023 6% 1.00 6.5% 0.35 Forecasts 2025 2023 2024 2% 2% 13% 14% 60% 60% 140% 6% 7% 7% 0.65 0.60 0.60 2026 3% 4% 13% 13% 50% 50% 140% 140% 140% 6% 0.60 REQUIRED: a. Using the decomposed ROE framework, answer the following: b. Calculate operating ROA for Spring and Summer. Which firm had a higher operating return on assets in 2023? (2 marks) c. From the information provided in the first table, identify and discuss three (3) factors that contributed to the differences in operating ROA between Spring and Summer, and ultimately the differences in ROE between those two (2) firms? (9 marks) d. For Spring Ltd's key financial metrics provided in the second table, identify and explain three (3) possible assumptions needed to be made by the analyst while developing the forecasts. (9 marks) For the year ended 30 June 2023, Spring Ltd had a return on equity (ROE) of 6.83 percent while Summer Ltd's ROE was 5.83 percent. The following data from the financial statements are available to a financial analyst: NOPAT margin Sales/Net operating assets Effective after-tax interest rate Net debt Spring Ltd The analyst has developed the following forecasts for the key financial metrics of financial statements for Spring Ltd. Her points of reference in developing these forecasts were the reported numbers from financial statements in the last two (2) years, 2022 and 2023. Sales growth NOPAT margin Working capital to sales Net long-term assets to sales Effective after-tax interest rate Net debt Actual 2022 Spring 2023 13% 0.50 6% 0.65 1% 12% 50% 150% 5% 0.70 Summer 2023 6% 1.00 6.5% 0.35 Forecasts 2025 2023 2024 2% 2% 13% 14% 60% 60% 140% 6% 7% 7% 0.65 0.60 0.60 2026 3% 4% 13% 13% 50% 50% 140% 140% 140% 6% 0.60 REQUIRED: a. Using the decomposed ROE framework, answer the following: b. Calculate operating ROA for Spring and Summer. Which firm had a higher operating return on assets in 2023? (2 marks) c. From the information provided in the first table, identify and discuss three (3) factors that contributed to the differences in operating ROA between Spring and Summer, and ultimately the differences in ROE between those two (2) firms? (9 marks) d. For Spring Ltd's key financial metrics provided in the second table, identify and explain three (3) possible assumptions needed to be made by the analyst while developing the forecasts. (9 marks)

Answer rating: 100% (QA)

a Decomposed ROE Framework Return on Equity ROE can be decomposed into two components Operating Return on Assets Operating ROA and Financial Leverage The formula for ROE is as follows ROE Operating RO... View the full answer