3. Financial Statement Analysis: Calculate ROE, ROA, ROI, ROIC. (15 points)

SHOW ALL WORK

Assume we have two companies that are exactly alike in all ways, except one has debt and equity, and the other just has equity (no debt). We will call the one without the debt unleveraged (U) and the one with the debt we will call leveraged (L). We will look at the income statement under three different conditions: Good, Expected and Bad.

To calculate the ROE, ROA, ROI, and ROIC for each firm, you must first complete the balance sheet and income statement.

First, lets look at the balance sheet and income state of Firm U.

Firm U B/S

Assets		Liabilities & Owners Equity
Current Assets	$ 50	Debt $ 0
Fixed Assets	$ 50	Equity $100
Total Assets	$	Total L & OE $

	Firm U I/S	Business Condition
	Good	Expected	Bad
Revenue	$150	$100	$75
Oper Costs Fixed	45
Variable	60	40	30

Total Oper Costs Operating Income (EBIT)

Interest (i = 10%) Earnings before taxes (EBT)

Taxes (t = 40%) Net Income (NI) $ $ $