Analysis and Interpretation of ROE and RNOA with No Noncontrolling Interest Balance sheets and income statements for Nordstrom, Inc. follow. Refer to these financial statements to answer the requirements. NORDSTROM, INC. Consolidated Statements of Earnings For Fiscal Years Ended ($ millions) 2009 2008 2007 Sales $ 8.272 $8,828 $8.561 Credit card revenues 301 252 105 Total revenues 8.573 9,080 8,666 Cost of sales and related buying and occupancy costs (5,417) (5,526) (5,354) Selling general and administrative expenses Retail (2.103) (2.130) (2,071) Credit (274) (177) (92) Earnings before interest and income taxes 779 1.247 1,149 Net interest expense (131) (43) Earnings before income taxes 648 1.173 1,106 Income tax expense (247) (458) (428) Net earnings $ 401 $ 715 $ 678 $72 NORDSTROM, INC. Consolidated Balance Sheets ($ millions) January 31, 2009 February 2, 2008 Assets Current Assets Cash and cash equivalents $ 358 Accounts receivable.net 1,942 1.788 Merchandise inventories 900 956 Current deferred tax assets, net 210 181 Prepaid expenses and other 93 78 Total current assets 3.217 3.361 Land, buildings and equipment, net 2.221 1,983 Goodwill 53 53 Other assets 170 203 Total assets $ 5.661 $ 5,600 Liabilities and Shareholders' Equity Current liabilities Accounts payable $ 563 $ 556 Accrued salaries, wages and related benefits 214 268 Other current liabilities 525 550 Current portion of long-term debt 299 261 Total current liabilities 1,601 1.635 Long-term debt, net 2.214 2.236 Deferred property incentives, net 435 369 Other liabilities 201 245 Shareholders' equity Common stock, no par value 997 936 Retained earnings 223 201 Accumulated other comprehensive income (loss) (10) Total shareholders' equity 1.210 1,115 Total liabilities and shareholders' equity $ 5,661 $ 5,600 (22) HINT: For Sales use "Total revenues" for your computations, when applicable. (a) Compute net operating profit after tax (NOPAT) for 2009. Assume that the combined federal and statutory rate is: 37.0%. (Round your answer to the nearest whole number.) 2009 NOPAT = $ 638 x (b) Compute net operating assets (NOA) for 2009 and 2008. 2009 NOA = $ 0 X 2008 NOA = $ 0 x (c) Compute RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2009. Do not use NOPM x NOAT to calculate RNOA. (Do not round until your final answers. Round to two decimal places.) 2009 RNOA = 0 X % 2009 NOPM = 0 X % 2009 NOAT = 0 X (d) Compute net nonoperating obligations (NNO) for 2009 and 2008. 2009 NNO = $ 0 X 2008 NNO = $ 0 X (e) Compute return on equity (ROE) for 2009. (Round your answers to two decimal places. Do not round until your final answer.) 2009 ROE = 0 X % (f) Infer the nonoperating return component of ROE for 2009. (Use answers from above to calculate. Round your answer to two decimal places.) 2009 nonoperating return = 0 X % (g) Comment on the difference between ROE and RNOA. Which of the following statements best describes the inference from the difference between Nordstrom's ROE and RNOA? OROE>RNOA implies that Nordstrom's equity has grown faster than its NOA. The faster increase of equity compared to NOA allows higher dividends to be paid to Nordstrom's stockholders. OROE>RNOA implies that Nordstrom 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 Nordstrom's stockholders. OROE>RNOA implies that Nordstrom has taken on too much financial leverage. The high financial leverage results in a higher interest rate on Nordstrom's debt, therefore the cost of debt is greater. OROE>RNOA implies that Nordstrom has increased its financial leverage during the period. The increase in financial leverage also increases Nordstrom's risk, therefore increasing the expected ROE by Nordstrom's stockholders