Question

Analysis and Interpretation of Ratios When RNOA Exceeds ROE Refer...

Analysis and Interpretation of Ratios When RNOA Exceeds ROE

Refer to the balance sheets and income statement below for Facebook Inc.

FACEBOOK INC.Consolidated Statement of IncomeFor Year Ended December 31, $ millions2018Revenue$55,280Costs and expensesCost of revenue9,355Research and development10,273Marketing and sales7,846General and administrative3,451Total costs and expenses30,925Income from operations24,355Interest and other income (expense), net448Income before provision for income taxes24,803Provision for income taxes3,249Net income$21,554

FACEBOOK INC.Consolidated Balance SheetAt December 31, $ millions20182017Current assetsCash and cash equivalents$10,019$8,079Marketable securities31,09533,632Accounts receivable, net7,5115,832Prepaid expenses and other current assets1,7791,020Total current assets50,40448,563Property and equipment, net24,68313,721Intangible assets, net1,2941,884Goodwill18,30118,221Other assets$2,576$2,135Total assets$97,258$84,524Current liabilitiesAccounts payable$820$380Partners payable541390Accrued expenses and other current liabilities5,5092,892Deferred revenue and deposits14798Total current liabilities7,0173,760Other liabilities6,1906,417Total liabilities13,20710,177Stockholders' equityCommon stock and additional paid-in capital42,90640,584Accumulated other comprehensive loss(760)(227)Retained earnings41,90533,990Total stockholders' equity84,05174,347Total liabilities and stockholders' equity$97,258$84,524

Use these financial statements to answer the requirements.

Required

a.Compute net operating profit after tax (NOPAT) for 2018. Assume that the combined federal and state statutory tax rate is 22%.Hint:Carefully consider whether nonoperating expense is positive or negative.

Note:Round answer to the nearest million.

$Answer

($ millions)

b.Compute net operating assets (NOA) for 2018 and 2017.

NOA for 2017:Answer

NOA for 2018:Answer

c.Compute RNOA and disaggregate it into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2018.

Note:For NOPM and RNOA, round percentages to two decimal places (for example, enter 6.66% for 6.6555%).

Note:For NOAT, round amount to four decimal places (for example, enter 6.7756 for 6.775555).

NOPMxNOAT=RNOA

x

=

d.Compute return on equity (ROE) for 2018.

Note:Round percentage to two decimal places (for example, enter 6.66% for 6.6555%).

Answer

%