In: Finance
Income statements and balance sheets follow for The New York Times Company. Refer to these financial statements to answer the requirements.
The New York Times Company Consolidated Statements of Income |
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Fiscal year ended |
||
(in thousands) |
Dec. 29, 2016 |
Dec. 30, 2015 |
Revenues |
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Circulation |
$ 880,543 |
$ 851,790 |
Advertising |
580,732 |
638,709 |
Other |
94,067 |
88,716 |
Total revenues |
1,555,342 |
1,579,215 |
Production costs |
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Wages and benefits |
363,051 |
354,516 |
Raw materials |
72,325 |
77,176 |
Other |
192,728 |
186,120 |
Total production costs |
628,104 |
617,812 |
Selling, general and administrative costs |
721,083 |
713,837 |
Depreciation and amortization |
61,723 |
61,597 |
Total operating costs |
1,410,910 |
1,393,246 |
Restructuring charge |
14,804 |
0 |
Multiemployer pension plan withdrawal expense |
6,730 |
9,055 |
Pension settlement charges |
21,294 |
40,329 |
Early termination charge |
0 |
0 |
Operating profit |
101,604 |
136,585 |
Loss from joint ventures |
(36,273) |
(783) |
Interest expense, net |
34,805 |
39,050 |
Income from continuing operations before income taxes |
30,526 |
96,752 |
Income tax expense/(benefit) |
4,421 |
33,910 |
Income from continuing operations |
26,105 |
62,842 |
Loss from discontinued operations, net of income taxes |
(2,273) |
0 |
Net income |
23,832 |
62,842 |
Net loss attributable to the noncontrolling interest |
5,236 |
404 |
Net income attributable to The New York Times Company common stockholders |
$29,068 |
$63,246 |
Continued next page
The New York Times Company Consolidated Balance Sheets |
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As of |
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(in thousands) |
Dec. 29, 2016 |
Dec. 30, 2015 |
Cash and cash equivalents |
$ 100,692 |
$ 105,776 |
Short-term investments |
449,535 |
507,639 |
Accounts receivable, net |
197,355 |
207,180 |
Prepaid assets |
15,948 |
19,430 |
Other current assets |
32,648 |
22,507 |
Total current assets |
796,178 |
862,532 |
Long-term marketable securities |
187,299 |
291,136 |
Investments in joint ventures |
15,614 |
22,815 |
Property plant and equipment, net |
596,743 |
632,439 |
Goodwill |
134,517 |
109,085 |
Deferred income taxes |
301,342 |
309,142 |
Miscellaneous assets |
153,702 |
190,541 |
Total assets |
$2,185,395 |
$2,417,690 |
Accounts payable |
$ 104,463 |
$ 96,082 |
Accrued payroll and other related liabilities |
96,463 |
98,256 |
Unexpired subscriptions |
66,686 |
60,184 |
Current portion of long-term debt |
0 |
188,377 |
Accrued expenses and other |
131,125 |
120,686 |
Total current liabilities |
398,737 |
563,585 |
Long-term debt and capital lease obligations |
246,978 |
242,851 |
Pension benefits obligation |
558,790 |
627,697 |
Postretirement benefits obligation |
57,999 |
62,879 |
Other |
78,647 |
92,223 |
Total other liabilities |
942,414 |
1,025,650 |
Stockholders’ equity |
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Common stock of $0.10 par value |
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Class A common stock |
16,921 |
16,826 |
Class B convertible stock |
82 |
82 |
Additional paid-in capital |
149,928 |
146,348 |
Retained earnings |
1,331,911 |
1,328,744 |
Common stock held in treasury, at cost |
(171,211) |
(156,155) |
Accumulated other comprehensive loss, net of tax |
(479,816) |
(509,094) |
Total New York Times Company stockholders’ equity |
847,815 |
826,751 |
Noncontrolling interest |
(3,571) |
1,704 |
Total stockholders’ equity |
844,244 |
828,455 |
Total liabilities and stockholders’ equity |
$2,185,395. |
$2,185,395 |
d. Compute return on common shareholders equity (ROE) for 2016 and 2015. Stockholders’ equity attributable to New York Times Company in 2014 is $726,328 thousand.
e. What is nonoperating return component of ROE for 2016 and 2015?
f. Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?
Soln : d) We need to calculate the ROE for year 2015 and 2016
Step1 : Calculate the Shareholders equity on average basis, it can be done taking shareholders equity at end and beginning of year.
For 2015 : Stockholders equity in beginning of 2015 = $726328 thousand and in the end of 2015 = $828455
Avg. of both = (726328+828455)/2 = 1554783/2 = $777391.50
Step 2 : get the net profit from the P & L statement at the end of year, NP = $63246
Step 3: Return on Equity = NP/Avg. stakeholders value = 63246/777391.50 = 8.14% (approx.)
Similarly we will calculate for year 2016:
Average value of stockholders equity = (828455 + 844244)/2 = 1672699/2 = 886349.50
Reurn on equity for 2016 = 29068/886349.50 = 3.28%
e) For nonoperating return component of ROE , we need to calculate RNOA = Return on net operating assets
RNOA = NOPAT/Avg. net operating asset
Again avg. can be claculated using the data from balance sheet
NOA = Total asset of company - All liabilities - All financial assets and liabilities = Operating assets - operating liabilities
For 2015
NOA = (2417690 -507639-291136-22815) -(96082++98256+120686+627697+62879+92223) = 498277
Similarly for 2016, NOA = (2185395-449535-187299-15614) - (1027487) = 505460
NOPAT for year 2015 = operating profit*(1-tax rate) = 136585*(1-0.35) = 88780.25
NOPAT for 2016 = operating profit*(1-tax rate) = 101604*(1-0.35) = 66042.60
RNOA for 2015 = NOPAT /NOA = 88780.25/498277= 17.82%
RNOA for 2016 = 66042.60/501868.50 = 13.16%
Non operating component of ROE = ROE - RNOA
For 2015 , it is = 8.14 - 17.82 = -9.68%
For 2016 , it is = 3.28 - 13.16 = -9.88%
f) As we can see here that in 2015, the value of ROE <RNOA in both the cases, that means the losses from the other activities than operations is more, which makes it a risky company. As all its profit are being eaten by the investments outside the company.