Analysis and Interpretation of Profitability Balance sheets and income statements for Best Buy Co., Inc. follow. Consolidated Statements of Earnings For Fiscal Years Ended ($ millions) February 26, 2011 February 27, 2010 February 28, 2009 Revenue $ 50,272 $ 49,694 $ 45,015 Cost of goods sold 37,611 37,534 34,017 Restructuring charges - cost of goods sold 24 Gross Profit 12,637 12,160 10,998 Selling general and administrative expenses 10,325 9,873 8,984 Restructuring charges 198 52 78 Goodwill and tradename impairment 66 Operating income 2,114 2,235 1,870 Other income (expense) Investment income and other 51 54 35 Investment impairment (111) Interest expense (87) 194) (94) Earnings before income tax expense and equity in income of affiliates 2,078 2,195 1,700 Income tax expense 714 802 674 2 1 7 1,366 1,394 1,033 Equity in income of affiliates Net earnings including noncontrolling interest Net income attributable to noncontrolling interest Net income attributable to Best Buy Co., Inc. ( (89) (77) (30) $ 1,003 $1,277 $1,317 Consolidated Balance Sheets ($ millions, except footnotes) February 26, 2011 February 27, 2010 Assets Current assets Cash and cash equivalents $1,103 $ 1,826 Short-term investments 22 90 Receivables 2,348 2,020 Merchandise inventories 5,897 5,486 Other current assets 1,103 1,144 Total current assets 10,473 10,566 766 757 Property and equipment Land and buildings Leasehold improvements Fixtures and equipment Property under capital lease 2,318 2,154 4,701 4,447 120 95 7,905 7,453 Less: Accumulated depreciation 4,082 3,383 Property and equipment, net 3,823 4,070 Goodwill 2,454 2,452 Tradenames, net 133 159 Customer relationships, net 203 279 Equity and other investments 328 324 Other noncurrent assets 435 452 Total assets $ 17,849 $ 18,302 Liabilities and equity Current liabilities Liabilities and equity Current liabilities Accounts payable $ 4,894 $ 5,276 Unredeemed gift card liabilities 474 463 Accrued compensation and related expenses 570 544 Accrued liabilities 1,471 1,681 Accrued income taxes 256 316 Short-term debt 557 663 Current portion of long-term debt 441 35 Total current liabilities 8,663 8,978 1,183 1,256 Long-term liabilities Long-term debt 711 1,104 39 42 Equity Best Buy Co., Inc. Shareholders' equity Preferred stock, $1.00 par value Common stock, $0.10 par value Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Best Buy Co., Inc. shareholders' equity 18 441 6,372 5,797 173 40 6,602 6,320 Noncontrolling interest 690 644 7,292 6,964 Total equity Total liabilities and equity $ 17,849 $ 18,302 (a) Compute net operating profit after tax (NOPAT) for 2011. Assume that the combined federal and statutory rate is: 37.0%. (Hint: Treat equity in income of affiliates as operating. Round your answer to the nearest whole number.) 2011 NOPAT = 0 ($ millions) (b) Compute net operating assets (NOA) for 2011 and 2010. (Hint: Treat Equity and Other Investments and Long-Term Liabilities as operating.) 2011 NOA = 0 ($ millions) 2010 NOA = 0 ($ millions) (c) Compute Best Buy's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2011. (Do not round until final answer. Round two decimal places. Do not use NOPM X NOAT to calculate RNOA.) 2011 RNOA = 0 % 2011 NOPM % 2011 NOAT = 0 (d) Compute net nonoperating obligations (NNO) for 2011 and 2010. 2011 NNO = 0 ($ millions) 2010 NNO = 0 ($ millions) (e) Compute return on equity (ROE) for 2011. (Round your answers to two decimal places. Do not round until your final answer.) 2011 ROE 0 % (f) Infer the nonoperating return component of ROE for 2011. (Use answers from above to calculate. Round your answer to two decimal places.) 2011 nonoperating return = 0 % (g) Which of the following statements reflects the best inference we can draw from the difference between Best Buy's ROE and RNOA? ROE > RNOA implies that Best Buy's equity has grown faster than its NOA. ROE > RNOA implies that Best Buy has taken on too much financial leverage. ROE > RNOA implies that Best Buy is able to borrow money to fund operating assets that yield a return greater than its cost of debt; the excess accrues to the benefit of Best Buy's stockholders. ROE > RNOA implies that Best Buy has increased its financial leverage during the period