Balance sheets and income statements for Amgen, Inc. follow. Refer to these financial statements to answer the following requirements.

\section*{Required}

a. Compute net operating profit after tax (NOPAT) for 2007 and 2006. Assume that the combined federal and state statutory tax rates are \(36.1 \%\) for 2007 and \(36.6 \%\) for 2006 .

b. Compute net operating assets (NOA) for 2007 and 2006.

c. Computẹ RNOA and disaggregate it into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2007 and 2006 ; the 2005 NOA is \(\$ 20,993\) million. Comment on the drivers of the improvement in RNOA.

d. Compute net nonoperating obligations (NNO) for 2007 and 2006. Confirm the relation: \(\mathrm{NOA}=\) \(\mathrm{NNO}+\) Stockholders' equity.

e. Compute return on equity (ROE) for 2007 and 2006 ; the 2005 stockholders' equity is \(\$ 20,451\) million.

f. Infer the nonoperating return component of ROE for both 2007 and 2006.
g. Comment on the difference between ROE and RNOA. What does this relation suggest about its use of debt?

Transcribed Image Text:

AMGEN, INC. Income Statements Years Ended December 31 (In millions) 2007 2006 2005 Revenues: Product sales Other revenues Total revenues. Operating expenses: Cost of sales (excludes amortization of acquired $14,311 460 $13,858 410 $12,022 408 14,771 14.268 12,430 intangible assets presented below)... 2.548 2,095 2,082 Research and development. 3,266 3,366 2,314 Selling, general and administrative.. 3.361 3,366 2,790 Amortization of acquired intangible assets. 298 370 347 Write-off of acquired in-process research and development. 590 1,231 Other Items (primarily certain restructuring costs in 2007).. 728 49 Total operating expenses 10,791 10,428 7,582 Operating income..... 3,980 3,840 4,848 Other income (expense): Interest and other income, net 309 309 119 Interest expense, net (328) (129) (99) Total other income (expense) Income before income taxes Provision for income taxes... Net income. (19) 180 20 3,961 4,020 4,868 795 1,070 1,194 $ 3,166 $ 2,950 $ 3,674