Required:

1. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for fiscal 2016 and 2015.

2. Compute net operating assets (NOA) for 2016 and 2015.

3. Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $3,011.7 million in 2014.

4. Compute return on equity (ROE) for 2016 and 2015. (Stockholders equity attributable to Tool-It in 2014 is $2,207.8 million.)

5. What is nonoperating return component of ROE for 2016 and 2015?

6. Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?

TOOL-IT INCORPORATED Consolidated Balance Sheets Fiscal Year End 2016 (Amounts in millions) 2015 Cash and cash equivalents Trade and other accounts receivable - net Finance receivables - net Contract receivables - net Inventories - net Deferred income tax assets Prepaid expenses and other assets Total current assets Property and equipment - net Deferred income tax assets Long-term finance receivables - net Long-term contract receivables - net Goodwill Other intangibles - net Other assets Total assets $ 77.6 598.8 472.5 88.1 530.5 0.0 116.5 1,884.0 425.2 72.8 934.5 286.7 895.5 184.6 39.9 4,723.2 $ 92.8 562.5 447.3 82.1 497.8 109.9 106.3 1,898.7 413.5 106.3 772.7 266.6 790.1 195.0 44.0 4,486.9 Notes payable and current maturities of long-term debt Accounts payable Accrued benefits Accrued compensation Franchisee deposits Other accrued liabilities Total current liabilities Long-term debt Deferred income tax liabilities Retiree health care benefits Pension liabilities Other long-term liabilities Total liabilities 301.4 170.9 52.8 89.8 66.7 307.9 989.5 708.8 13.1 36.7 246.5 93.4 2,088.0 18.4 148.3 52.1 91.0 64.4 296.3 670.5 861.7 169.8 37.9 227.8 88.5 $ 2,056.2 Preferred stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock at cost Total shareholders' equity attributable to Tool-It Inc. Noncontrolling interests Total shareholders' equity Total liabilities and shareholders' equity 67.4 317.3 3,384.9 (498.5) (653.9) 2,617.2 18.0 2,635.2 $ 4,723.2 $ 67.4 296.3 2,986.9 (364.2) (573.7) 2,412.7 18.0 2,430.7 $ 4,486.9 Continued next page Income statements and balance sheets follow for Tool-It Incorporated. Refer to these financial statements to answer the requirements. TOOL-IT INCORPORATED Consolidated Statements of Earnings (Amounts in millions) Net sales Cost of goods sold Gross profit Operating expenses Operating earnings before financial services For the fiscal year ended 2016 2015 $ 3,430.4 $ 3,352.8 (1,720.8) (1,704.5) 1,709.6 1,648.3 (1,054.1) (1,053.7) 655.5 594.6 Financial services revenue Financial services expenses Operating income from financial services Operating earnings Interest expense Other income (expense) -- net Earnings before income taxes and equity earnings Income tax expense Earnings before equity earnings Equity earnings, net of tax Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Tool-It Incorporated 281.4 (82.7) 198.7 854.2 (52.2) (0.6) 801.4 (244.3) 557.1 2.5 559.6 (13.2) $ 546.4 240.3 (70.1) 170.2 764.8 (51.9) (2.4) 710.5 (221.2) 489.3 1.3 490.6 (11.9) $ 478.7 Continued next page TOOL-IT INCORPORATED Consolidated Balance Sheets Fiscal Year End 2016 (Amounts in millions) 2015 Cash and cash equivalents Trade and other accounts receivable - net Finance receivables - net Contract receivables - net Inventories - net Deferred income tax assets Prepaid expenses and other assets Total current assets Property and equipment - net Deferred income tax assets Long-term finance receivables - net Long-term contract receivables - net Goodwill Other intangibles - net Other assets Total assets $ 77.6 598.8 472.5 88.1 530.5 0.0 116.5 1,884.0 425.2 72.8 934.5 286.7 895.5 184.6 39.9 4,723.2 $ 92.8 562.5 447.3 82.1 497.8 109.9 106.3 1,898.7 413.5 106.3 772.7 266.6 790.1 195.0 44.0 4,486.9 Notes payable and current maturities of long-term debt Accounts payable Accrued benefits Accrued compensation Franchisee deposits Other accrued liabilities Total current liabilities Long-term debt Deferred income tax liabilities Retiree health care benefits Pension liabilities Other long-term liabilities Total liabilities 301.4 170.9 52.8 89.8 66.7 307.9 989.5 708.8 13.1 36.7 246.5 93.4 2,088.0 18.4 148.3 52.1 91.0 64.4 296.3 670.5 861.7 169.8 37.9 227.8 88.5 $ 2,056.2 Preferred stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock at cost Total shareholders' equity attributable to Tool-It Inc. Noncontrolling interests Total shareholders' equity Total liabilities and shareholders' equity 67.4 317.3 3,384.9 (498.5) (653.9) 2,617.2 18.0 2,635.2 $ 4,723.2 $ 67.4 296.3 2,986.9 (364.2) (573.7) 2,412.7 18.0 2,430.7 $ 4,486.9 Continued next page Income statements and balance sheets follow for Tool-It Incorporated. Refer to these financial statements to answer the requirements. TOOL-IT INCORPORATED Consolidated Statements of Earnings (Amounts in millions) Net sales Cost of goods sold Gross profit Operating expenses Operating earnings before financial services For the fiscal year ended 2016 2015 $ 3,430.4 $ 3,352.8 (1,720.8) (1,704.5) 1,709.6 1,648.3 (1,054.1) (1,053.7) 655.5 594.6 Financial services revenue Financial services expenses Operating income from financial services Operating earnings Interest expense Other income (expense) -- net Earnings before income taxes and equity earnings Income tax expense Earnings before equity earnings Equity earnings, net of tax Net earnings Net earnings attributable to noncontrolling interests Net earnings attributable to Tool-It Incorporated 281.4 (82.7) 198.7 854.2 (52.2) (0.6) 801.4 (244.3) 557.1 2.5 559.6 (13.2) $ 546.4 240.3 (70.1) 170.2 764.8 (51.9) (2.4) 710.5 (221.2) 489.3 1.3 490.6 (11.9) $ 478.7 Continued next page