Refer to the financial statements of Home Depot and Lowe's present in P5-38

a. Dompute each company's net operating profit after taxes (NOPAT) for 2017 and net operating assets (NOA) for 2017 and 2016. Classify other assets and other liabilities (both current and noncurrent) as operating assets and liabilities in the balance sheet. Assume a 35% tax rate. Hint: gain and losses on extinguishment of debt results from financing activities and are not part of operations

b. Compute each company's return on net operating assets (RNOA) for 2017

c. Compute the 2017 net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company

d. Compare operating returns for these two companies. How does RNOA compare to ROA? What are insights gained by focusing on operating returns?

A M N 0 5-40 Analysis of the Effect of Operation on ROE Refer to the financial statements of Home Depot and Lowe's present in P5-38 - Home Depot, Inc. Balance Sheets Lowes Companies Balance Sheet $ millions 2017 2016 2017 2016 Assets Current Assets: Cash and Cash Equivalents $ 3,595 $ 2,538 $ 5BB $ 55B Short term investments $ 1025 100 Recelevables, Net $ 1,952 $ 2,029 . Merchandise inventories $ 12,748 $ 12,549 $ 11,393 S 10,458 Other Current Assets 5 638 600 $ 689 $ 884 Tatal Current Assets $ 18,933 $ 17,724 $ 12,772 $ Net Property and Equipment $ 22,075 $ 21,914 $ 19,721 5 19,949 Goodwill $ 2,275 $ 2,093 S 1,307 S 1,082 Long-term investments 5 408 $ 366 Other Asset: $ 1,246 $ 1,235 S 1,083 $ 1,011 Total Assets $ 44,529 $ 42,966 $ 35,291 $ 34,408 Llabilities and Shareholders' Equity Current Liabilities: Short term debt and current maturities of long-term deb $ 2,761 $ 1,252 $ 1,431 S 1,305 Accounts Payable 5 7,244 $ 7,000 $ 5,590 5 5,651 Accrued Salaries and related expenses $ 1,640 $ 1,484 $ 747 $ $ 790 Deferred Revenue $ 1,805 $ 1,669 $ 1,378 $ 1,259 Income Taxes Payable $ 54 $ 25 Other Current Llabilities S $ 2,690$ 2.709 $ 1,950 $ 1,975 Total Current Liabilities $ 16,194 $ 14,133 S 12,096 S 11,974 Long term debt, excluding current maturities S 24,267 $ 22,849 $ 15,564 $ 14,394 Deferred Income Taxes $ 440 296 Other Long term liabilities S 2,174 $ 1,855 S 1,758 $ 1,606 Total Liabilities 5 43,075 $ 38,633 S 29,418 5 27,974 Tatal Stockholders' Equity $ 1,454 $ 4,333 $ 5,873 S 6,434 Total Liabilities & Stockholders' Equity 5 44,529 $ 42.966 5 35,291 $ 34.408 Home Depot, Inc. Income Sheets Lowes Companies Income Sheet ($ millions 2017 2016 2017 2016 Net Sales $ 100,904 $ 94,595 $ 66,619 $ 65,017 Cost of Sales $ $ 66,548 $ 62 282 $ 45,210 $ 42,553 Gross Profit $ 34,356 $ 32,313 $ 23,409 $ 22,464 Operating Expenses: Selling, General and Administrative $ 17,864 5 $ 17,132 $ 15,376 $ 15,129 Depreciation and Ammortization $ 1,811 $ 1,754 S 1,447 $ 1,499 Operating Income 5 14,681 $ 13,427 $ 6,586 5 5,846 Interest and Other Income) Expense: Interest and Investment Income $ 174) $ (36) $ (16) $ (12) Interest Expense S 1,057 $ 972 $ 649 $ 657 Loss on extinguishment of debt 0 0$ 464 Earnings before provision for income taxe $ 13,698 $ 12,491 $ 5,489 $ 5,201 Provision for income taxes $ 5,068 $ 4,534 $ 2,042 $ 2,108 Net Earnines 5 8,630 $ 7,957 $ 3.4479 3,093 12,000 a. Dompute each company's net operating profit after taxes (NOPAT) for 2017 and net operating assets (NOA) for 2017 and 2016. Classify other assets and other liabilities (both current and noncurrent) as operating assets and liabilities in the balance sheet. Assume a 35% tax rate. Hint: gain and losses on extinguishment of debt results from financing activities and are not part of operations b. Compute each company's return on net operating assets (RNOA) for 2017 c. Compute the 2017 net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company d. Compare operating returns for these two companies. How does RNOA compare to ROA? What are insights gained by focusing on operating returns? A M N 0 5-40 Analysis of the Effect of Operation on ROE Refer to the financial statements of Home Depot and Lowe's present in P5-38 - Home Depot, Inc. Balance Sheets Lowes Companies Balance Sheet $ millions 2017 2016 2017 2016 Assets Current Assets: Cash and Cash Equivalents $ 3,595 $ 2,538 $ 5BB $ 55B Short term investments $ 1025 100 Recelevables, Net $ 1,952 $ 2,029 . Merchandise inventories $ 12,748 $ 12,549 $ 11,393 S 10,458 Other Current Assets 5 638 600 $ 689 $ 884 Tatal Current Assets $ 18,933 $ 17,724 $ 12,772 $ Net Property and Equipment $ 22,075 $ 21,914 $ 19,721 5 19,949 Goodwill $ 2,275 $ 2,093 S 1,307 S 1,082 Long-term investments 5 408 $ 366 Other Asset: $ 1,246 $ 1,235 S 1,083 $ 1,011 Total Assets $ 44,529 $ 42,966 $ 35,291 $ 34,408 Llabilities and Shareholders' Equity Current Liabilities: Short term debt and current maturities of long-term deb $ 2,761 $ 1,252 $ 1,431 S 1,305 Accounts Payable 5 7,244 $ 7,000 $ 5,590 5 5,651 Accrued Salaries and related expenses $ 1,640 $ 1,484 $ 747 $ $ 790 Deferred Revenue $ 1,805 $ 1,669 $ 1,378 $ 1,259 Income Taxes Payable $ 54 $ 25 Other Current Llabilities S $ 2,690$ 2.709 $ 1,950 $ 1,975 Total Current Liabilities $ 16,194 $ 14,133 S 12,096 S 11,974 Long term debt, excluding current maturities S 24,267 $ 22,849 $ 15,564 $ 14,394 Deferred Income Taxes $ 440 296 Other Long term liabilities S 2,174 $ 1,855 S 1,758 $ 1,606 Total Liabilities 5 43,075 $ 38,633 S 29,418 5 27,974 Tatal Stockholders' Equity $ 1,454 $ 4,333 $ 5,873 S 6,434 Total Liabilities & Stockholders' Equity 5 44,529 $ 42.966 5 35,291 $ 34.408 Home Depot, Inc. Income Sheets Lowes Companies Income Sheet ($ millions 2017 2016 2017 2016 Net Sales $ 100,904 $ 94,595 $ 66,619 $ 65,017 Cost of Sales $ $ 66,548 $ 62 282 $ 45,210 $ 42,553 Gross Profit $ 34,356 $ 32,313 $ 23,409 $ 22,464 Operating Expenses: Selling, General and Administrative $ 17,864 5 $ 17,132 $ 15,376 $ 15,129 Depreciation and Ammortization $ 1,811 $ 1,754 S 1,447 $ 1,499 Operating Income 5 14,681 $ 13,427 $ 6,586 5 5,846 Interest and Other Income) Expense: Interest and Investment Income $ 174) $ (36) $ (16) $ (12) Interest Expense S 1,057 $ 972 $ 649 $ 657 Loss on extinguishment of debt 0 0$ 464 Earnings before provision for income taxe $ 13,698 $ 12,491 $ 5,489 $ 5,201 Provision for income taxes $ 5,068 $ 4,534 $ 2,042 $ 2,108 Net Earnines 5 8,630 $ 7,957 $ 3.4479 3,093 12,000 a. Dompute each company's net operating profit after taxes (NOPAT) for 2017 and net operating assets (NOA) for 2017 and 2016. Classify other assets and other liabilities (both current and noncurrent) as operating assets and liabilities in the balance sheet. Assume a 35% tax rate. Hint: gain and losses on extinguishment of debt results from financing activities and are not part of operations b. Compute each company's return on net operating assets (RNOA) for 2017 c. Compute the 2017 net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company d. Compare operating returns for these two companies. How does RNOA compare to ROA? What are insights gained by focusing on operating returns