Question
ROCE decomposition using reformulated financial statements [(10 x 4) + 10 + 10 = 50 points] Leonie, Inc. had the following summary financial data for
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%
- Calculate the following:
- Basic Earning Power: EBIT Net Operating Assets (NOA);
- Return on Invested Capital (RNOA) = NOPAT NOA;
- Equity Multiplier = Total assets Stockholders' equity
- RNOA; (v) ROCE; (vi) FLEV; (vii) NBC; (viii) SPREAD; (ix) ATO; and (x) PM; and
- Prove that ROCE = RNOA + FLEV (RNOA - NBC or NNEP)
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