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Return on Investment, Financial Leverage, and DuPont Analysis The following tables provide information from the recent...

Return on Investment, Financial Leverage, and DuPont Analysis
The following tables provide information from the recent annual reports of HD Rinker, AG.

Balance sheets 2016 2015 2014 2013
Total assets € 6,108 € 6,451 € 7,173 € 6,972
Total liabilities 5,970 4,974 4,989 5,097
Total shareholders' equity 138 1,477 2,184 1,875
Income statements 52 weeks ended 2016 2015 2014
Sales revenue € 10,364 € 9,613 € 8,632
Earnings before interest and taxes 1,473 1,459 887
Interest expense 246 208 237
Earnings before income taxes 1,227 1,251 650
Income tax expense 377 446 202
Net earnings € 850 € 805 € 448

a. Calculate HD Rinker’s return on equity (ROE) for fiscal years 2016, 2015, and 2014.
Round answers to one decimal place (i.e., 0.2568 = 25.7%). Do not round until your final answer.

2016 Answer %
2015 Answer %
2014 Answer %

b. Calculate HD Rinker’s return on assets (ROA) and return on financial leverage (ROFL) for each year.
Round answers to one decimal place (i.e., 0.2568 = 25.7%). Do not round until your final answer.

ROA ROFL
2016 Answer % Answer %
2015 Answer % Answer %
2014 Answer % Answer %

c. Use the DuPont formulation in the Business Insight on page 230 to analyze the variations in HD Rinker's ROE over this period. Calculate net profit margin, asset turnover, and financial leverage.
Do not round until your final answer. Round answers to one decimal place (i.e., 0.2568 = 25.7%).

NPM AT FL
2016 Answer % Answer Answer
2015 Answer % Answer Answer
2014 Answer % Answer Answer

Solutions

Expert Solution

A) Calculation for ROE

ROE = net earnings or net income / average shareholder equity

ROE for 2014 = € 448 / [( € 1,875 + € 2,184) /2] = 22.07%

ROE for 2015 = € 805 / [( € 2,184 + € 1,477)/2] = 43.98%

ROE for 2016 = € 850 / [ ( € 1,477 + € 138)/2] = 105.26%

B) Calculation for ROA

ROA = net income / average total assets

ROA for 2014 = € 448/ [ ( € 6,972 + € 7,173)/2] = 6.33%

ROA for 2015.= € 805 / [ ( € 7,173 + € 6,451)/2] = 11.82%

ROA for 2016 = € 850/ [( € 6,451 + € 6,108)/2] = 13.54%

Calculation for ROFL

ROFL = ROE - ROA

ROFL for 2014 = 22.07 % - 6.33 % = 15.74%

ROFL for 2015 = 43.98 % - 11.82 % = 32.16%

ROFL for 2016 = 105.26% - 13.54% = 91.72%

C) Calculation for net profit margin

Net profit margin = net earnings / net sales

Net profit margin for 2014 = € 448/ € 8,632 = 5.19%

Net profit margin for.2015 = € 805/ € 9,613 = 8.37%

Net profit margin for 2016 = € 850/ € 10,364 = 8.20%

Calculation for assets turn over ratio

Assets turn over ratio = net sales / average total assets

Assets turn over ratio for 2014 = € 8,632/ [ (€ 6,972 + € 7,173)/2] = 122.05%

Assets turn over ratio for 2015 = € 9,613/[( € 7,173 + €6,451)/2] = 141.11%

Assets turn over ratio for 2016 = € 10,364/ [( € 6,451 + € 6,108)/2] = 165.04%

Calculation for financial leverage

Financial leverage = EBIT/ [ EBIT - interest ]

Financial leverage for 2014 = € 887 / [ € 887 - € 237] = 136.46%

Financial leverage for 2015 = € 1,459 / [ € 1,459 - € 208] = 116.63%

Financial leverage for 2016 = € 1,473 / [ €1,473 - € 246] = 120.05%

ekkarill92 answered 2 years ago
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