Question

Selected balance sheet and income statement information for ABC follows.

$ millions	Jan. 31, 2016	Feb. 01, 2015
Operating assets	$40,583	$38,473
Nonoperating assets	2,241	1,748
Total assets	42,824	40,221
Operating liabilities	15,018	13,527
Nonoperating liabilities	21,285	17,167
Total liabilities	36,303	30,694
Total stockholders' equity	6,521	9,527
Sales	88,999
Net operating profit before tax (NOPBT)	12,024
Nonoperting expense before tax	778
Tax expense	4,088
Net income	7,158

Round answers to two decimal places (ex: 0.12345 = 12.35%)

a. Compute ROE and disaggregate the ratio into its DuPont components of ROA and financial leverage.
ROE: Answer%
ROA: Answer%
Financial leverage: Answer

b. Disaggregate ROA in to profitability and productivity components.
Profit margin Answer%
Asset turnover Answer

Answer 1

a]

ROA = net income / average total assets

average total assets =   (42,824 + 40,221) = 41,522.50

ROA = 7,158 / 41,522.50 = 17.24%

Financial leverage = average total assets / average Total stockholders' equity

average Total stockholders' equity = (6,521 + 9,527) / 2 = 8,024

Financial leverage = 41,522.50 / 8,024 = 5.17

ROE = ROA * Financial leverage

ROE = 17.24% * 5.17

ROE = 89.21%

b]

Profit margin = net income / sales

Profit margin = 7,158 / 88,999 = 8.04%

Asset turnover = sales / average total assets

Asset turnover = 88,999 / 41,522.50

Asset turnover = 2.14 times