Question

Compute ROE and RNOA with Disaggregation
Selected balance sheet and income statement information for Home Depot follows.

$ millions	Jan. 31, 2016	Feb. 01, 2015
Operating assets	$40,333	$38,223
Nonoperating assets	2,216	1,723
Total assets	42,549	39,946
Operating liabilities	14,918	13,427
Nonoperating liabilities	21,315	17,197
Total liabilities	36,233	30,624
Total stockholders' equity	6,316	9,322
Sales	88,519
Net operating profit before tax (NOPBT)	11,774
Nonoperting expense before tax	753
Tax expense	4,012
Net income	7,009

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

a. Compute return on equity.
Answer%

b. Compute return on net operating assets (RNOA).
Answer%

c. Use ROE and RNOA to determine the nonoperating return for the year.
Answer%

d. Disaggregate RNOA into components of profitability and productivity and show that the product of the two components equals RNOA. Assume a statutory tax rate of 37%.
NOPM Answer%
NOAT Answer
RNOA Answer%

Most important, I can not figure out D

Answer 1

Question 1:

Return on Equity ROE = Net Income / (Average Equity)

ROE = 7,009 / ((6,316 + 9,322)/2)

ROE = 7,009/7,819

ROE = 0.8964

Question 2:

Return on Net Operating Assets = (Net Operating Profit After Tax) / (Average Operating Assets)

Return on Net Operating Assets = (NOPBT)(1 - Tax Rate) / (Average Operating Assets)

RNOA = (11,774)*(1-0.37)/((40,333 + 38,223)/2)

RNOA = 7,417.62/39,278

RNOA = 0.1888

Question 3:

ROE = RNOA + Nonoperating return

Nonoperating return = ROE - RNOA

Nonoperating return = 0.8964 - 0.1888

Nonoperating return = 0.7076

Question 4:

RNOA = NOPAT/(Average NOA)

RNOA = (NOPAT/Sales) * (Sales/Average NOA)

Net Income/Sales is the net profit margin, which is a profitability ratio and Sales/Average NOA is Operating Asset Turnover, which is a performance ratio

NOPM = NOPAT/Sales

NOPM = 7,417.62/88,519

NOPM = 0.0838

NOAT = Sales/Average NOA

NOAT = 88,519/39,278

NOAT = 2.2536

RNOA = NOPM*NOAT

RNOA = 0.0838*2.2536

RNOA = 0.1888