C12-49. Effect of Investment Accounting on Performance Ratios LO1, 3,4 oo! Inc. AQ YHOO ba Group E: BABA Since 2005, Yahoo! Inc. has held a significant investment in Alibaba Group. In September, 2014, Alibaba Group closed its initial public offering (IPO) of American Depository Shares (shares) Yahoo! sold 140 million shares in the IPO realizing a pretax gain of $10.3 billion. Following completion of the IPO, Yahoo! retained 383.6 million shares of Alibaba Group representing ap- proximately 15% of the outstanding shares. Note 2 to Yahoo! 's 2014 10-K report details its remain ing investment in Alibaba. ($ thousands) Cost Basis Fair Value Yahoo! reported the following (abridged) income statements in its 2014 10-K report (S thousands): Year Ended December 31, 2014 2013 $4,680,380 4,475,191 142,942 4,090,454 589,926 43,357 Income before income taxes and earnings in equity interests . . . .. .. ..10,512,381 (4,038,102) 633,283 (153,392) 896,675 $1,376,566 The following is from Yahoo!'s balance sheets as presented in its 2014 and 2013 10-K reports (S thousands) As of December 31, 2013 $61,960,344 $16,804,959 $17,103,253 $11,416,323 $11144,097 $10,961,873 2014 2012 Net operating assets REQUIRED At the end of 2013, Yahoo! owned 24% of the shares in Alibaba Group and reported its in- vestment as an equity method investment. Describe the impact of the Alibaba Group IPO on Yahoo!'s financial statements. What method does Yahoo! appear to be using to report its investment in Alibaba in 2014? Compute Yahoo!'s return on assets (ROA) for 2014 and 2013. Compute Yahoo!'s 2014 and 2013 net operating profit after taxes (NOPAT) and its return on net operating assets (RNO-NOPAT average net operating assets; refer to Appendix A at the end of Chapter 5 for further discussion). How does this ratio compare to the ROA ratios computed in b? a. b. c