Question

Selected balance sheet and income statement information for TGHI 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)

Net income = 7,158

Average equity = (6521+9527) / 2 = 8,024

Average assets = (42824+40221) / 2 = 41,522.5

ROE = Net income / Average equity * 100

= 7158 / 8024 *100

= 89.21%

ROA = Net income / Average assets * 100

= 7158 / 41522.5 *100

= 17.24%

Financial leverage = Average assets / Average equity

= 41522.5 / 8024

= 5.17

As per DuPont analysis, ROE can be disaggregated as follows:

ROE = ROA * Financial leverage

= 17.24% * 5.17

= 89.21%

(b)

Profit margin = Net income / Sales *100

= 7,158 / 88,999 *100

= 8.04%

Asset turnover = Sales / Average assets

= 88,999 / 41,522.5

= 2.14

As per DuPont analysis, ROA can be disaggregated as follows:

ROA = Profit margin * Asset turnover

= 8.04% * 2.14

= 17.24%