Question Two

ROCE decomposition using reformulated financial statements [(10 x 4) + 10 + 10 = 50 points]

Leonie, Inc. had the following summary financial data for the current year and the next year:

Reformulated Balance Sheet

Assets	2020 $	2021 $	Liabilities and Stockholders Equity	2020 $	2021 $
Operating Assets (OA)	15,000	18,500	Operating Liabilities (OL)	5,000	6,500
Financial Assets (FA)	1,000	1,000	Financial Obligation (FO)	6,000	5,000
			Common Stockholders Equity (CSE)	5,000	8,000
Total Assets	16,000	19,500	Total Liabilities and Stockholders Equity	16,000	19,500

Reformulated Income Statement

Items	2020 $	2021 $
Operating Revenue	20,000.00	22,900.00
Less Operating Costs	12,500.00	13,100.00
Operating Profit (EBIT)	7,500.00	9,800.00
Add Financial Income (FI)	30.00	30.00
Less Financial Expense (FE)	900.00	750.00
Net Financial Expense (NFE)	870.00	720.00
Earnings Before Tax (EBT)	6,630.00	9,080.00
Less Tax @ 23%	1,524.9	2,088.4
Net Income	5,105.1	6,991.6

Short-term borrowing rate = 10%; Interest rate on financial obligations = 15%

1. Calculate the following:

1. Basic Earning Power: EBIT Net Operating Assets (NOA);

2. Return on Invested Capital (RNOA) = NOPAT NOA;

3. Equity Multiplier = Total assets Stockholders equity

4. RNOA; (v) ROCE; (vi) FLEV; (vii) NBC; (viii) SPREAD; (ix) ATO; and (x) PM; and

2. Prove that ROCE = RNOA + FLEV (RNOA NBC or NNEP)