Problem 4-3 Measuring Performance (LO2)

Here are simplified financial statements for Watervan Corporation:

INCOME STATEMENT
(Figures in $ millions)
Net sales	$	897.00
Cost of goods sold		757.00
Depreciation		47.00
Earnings before interest and taxes (EBIT)	$	93.00
Interest expense		28.00
Income before tax	$	65.00
Taxes		22.75
Net income	$	42.25

BALANCE SHEET
(Figures in $ millions)
	End of Year				Start of Year
Assets
Current assets	$	385			$	344
Long-term assets		290				238
Total assets	$	675			$	582
Liabilities and shareholders equity
Current liabilities	$	210			$	173
Long-term debt		124				137
Shareholders equity		341				272
Total liabilities and shareholders equity	$	675			$	582

The companys cost of capital is 8%.

a. Calculate Watervans economic value added (EVA). (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

b. What is the companys return on capital? (Use start-of-year rather than average capital.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. What is its return on equity? (Use start-of-year rather than average equity.) (Enter your answer as a percent rounded to 2 decimal places.)

d. Is the company creating value for its shareholders?

• Yes

• No