Refer to the financial statements of Home Depot and Lowe's presented in PS-38.

REQUIRED
a. Compute each company's net operating profit after taxes (NOPAT) for 2017 and net operating assets (NOA) for 2017 and 2016. Classify other assets and other liabilities (both current and noncurrent) as operating assets and liabilities in the balance sheet. Assume a 35% tax rate.

b. Compute each company's return on net operating assets (RNOA) for 2017.

c. Compute the 2017 net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company.

d. Compare operating returns for these two companies. How does RNOA compare to ROA? What insights are gained by focusing on operating returns?

Data from PS-38:

Transcribed Image Text:

HOME DEPOT, INC. LOWE'S COMPANIES Balance Sheets Balance Sheets (S millions) 2017 2016 2017 2016 Assets Current assets: $ 3,595 $ 2,538 Cash and cash equivalents Short-lerm investments 588 558 102 100 Receivables, net.. 1,952 2,029 Merchandise inventories. 12,748 12,549 11,393 10,458 884 Other current assets. 638 608 689 Total current assets .... Net property and equipment. Goodwill 18,933 17,724 12,772 12,000 22,075 2.275 21,914 19,721 19,949 1,307 408 2,093 1,082 Long-term investments. Other assets. 366 1,246 1235 1,083 1,011 Total assets $44,529 $42,966 $35,291 $34,408 Liabiities and shareholders' equity Current liabilities: $ 1,431 6,590 $ 2,761 $ 1,252 $ 1,305 Short-te rm debt and current maturities of long-term debt. Accounts payable ... Accrued salaries and related expenses 7,244 7,000 6,651 1,640 1,484 747 790 Deferred revenue 1,805 1,669 1,378 1,253 Income taxes payable. . Other current liabilities 54 25 2,690 2,703 1,950 1,975 Total current liabilities... Long-term debt, excluding current maturities Deferred income taxes. Other long-term liabilities 16,194 24,267 14.133 12,096 11,974 22,349 296 15,564 14,394 440 2,174 1,855 1,758 1,606 Total liabilities . 43,075 1,454 38,633 4,333 29,418 5,873 27,974 6,434 Total stockholders' equity. Total liabilities and shareholders' equity.. $44,529 $42,966 $35,291 $34,408