True or False? Increasing a company’s net operating profit margin increases both RNOA and ROCE.

True or False?

Increasing a company’s net operating profit margin increases both RNOA and ROCE.

Expert Solution

RNOA stands for return on net operating assets

It means the return that is received on operating assets i.e the assets actually used for generating revenue in company . It indicates the income generated from assests.

RNOA = Net Operating Profit after tax/ Net Operating Assets.

ROCE stands for return on capital employed

It is a measure used for comparing the profitability of the company against the amount of capital used.

ROCE= Earnings before Interest and Tax/Capital Employed

EFFECT OF NET OPERATING PROFIT MARGIN

A) ON RNOA

RNOA = ( Net Operating Profit after tax/ sales) × (sales/Average Net Operating assets)

Therefore there is direct relationship between the net operating profit margin and RNOA as net operating profit is one of its component. The increase in margin will directly increse the RNOA

B) ON ROCE

The earnings before interest and tax is also known as operating income but the NET OPERATING PROFIT MARGIN is calculated net of tax so the increase in margin affects the ROCE but not by the same percentage the increase percentage reduces by the effect of net of tax percentage.

Thus the given statement is true the increasing net operating profit margin increases the RNOA and ROCE

ekkarill92 answered 2 years ago

Compute RNOA, Net Operating Profit Margin, and NOATurnover for CompetitorsSelected balance sheet and income...

Compute RNOA, Net Operating Profit Margin, and NOA Turnover for CompetitorsSelected balance sheet and income statement information for the fiscal year ended February 2, 2019, for Abercrombie & Fitch Co. and TJX Companies Inc., clothing retailers in the high‑end and value‑priced segments, respectively, follows.CurrentPriorYear NetYear NetOperatingOperatingCompany ($ millions)TickerSalesNOPATAssetsAssetsAbercrombie & FitchANF$3,590.10$89.15$808.15$877.30TJX CompaniesTJX39,752.363,128.034,252.004,196.59Compute the following ratios for both companies for the fiscal year ended February 2, 2019.Note: For RNOA and NOPM, round percentage to one decimal places (for example, enter 6.7% for...

Describe the differences between Return on Net Operating Assets (RNOA) and Return on Common Equity (ROCE)....

Describe the differences between Return on Net Operating Assets (RNOA) and Return on Common Equity (ROCE). Include your opinion on which metric is more beneficial to financial statement analysis. Be sure to comment beyond discussing the formula for computing the two ratios. Which metric is more beneficial to financial statement analysis. Be sure to comment beyond discussing the formula for computing the two ratios.

16. Operating Profit is the income after subtracting all the expenses from the gross margin (true/false)...

16. Operating Profit is the income after subtracting all the expenses from the gross margin (true/false) 17. Net profit is after subtracting all expenses from the revenue (true/false) 18. An Income statement is a report showing how well the business used its resources over a period of time. (true/false) 19. A debit increases an asset or an expense account (true/false) 20. Depreciation is the allocation of the cost of an asset with a life longer than a year (true/false)

1. What is the Profit Margin (both definition and in words)? If the benchmark for operating...

1. What is the Profit Margin (both definition and in words)? If the benchmark for operating income is 4.67% for the Health Care industry, how does St. John's compare to this benchmark? What are the implications to St. John's of this ratio?

Carl's Automotive operating income for the year was $900,000. Their net profit margin was 2.25% and...

Carl's Automotive operating income for the year was $900,000. Their net profit margin was 2.25% and their operating profit margin was 4.25%. Their total taxes amount to 40%. Depreciation was 10% of net fixed assets which totaled $1,250,000. Create their Income statement. Be sure to include all items of an income statement (operating costs, DA, Int, Taxes, etc.).

DB Post: Explain with numerical examples how to disaggregate RNOA into net operating profitability and net...

DB Post: Explain with numerical examples how to disaggregate RNOA into net operating profitability and net operating asset turnover.

True or False. If profit and wages are both rising during inflation, the inflation must be...

True or False. If profit and wages are both rising during inflation, the inflation must be a cost-pushed inflation.

Increasing net operating asset turnover requires some combination of increasing sales and/or decreasing net operating assets....

Increasing net operating asset turnover requires some combination of increasing sales and/or decreasing net operating assets. For the latter, many companies consider ways to reduce their investment in working capital (current assets less current liabilities). This can be accomplished by reducing the level of accounts receivable and inventories, or by increasing the level of accounts payable. Required a. Develop a list of suggested actions that you, as a manager, could undertake to achieve these three objectives. b. Describe the marketing...

NEED IT FOR TOMORROW MIDNIGHT SUNDAY THE 8th PLEASE Calculate RNOA and decompose into net operating...

NEED IT FOR TOMORROW MIDNIGHT SUNDAY THE 8th PLEASE Calculate RNOA and decompose into net operating profit margin and operating asset turnover (Module 4). Describe inventory valuation and depreciation methods for the two companies and compare methods between the two companies (Module 6). Are there any substantial differences that should be adjusted for when comparing performance for the two companies? Balance Sheet For company A: CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions Feb. 03, 2018 Jan. 28, 2017...

If a firm's profit margin increases by 8%, the debt-to-equity ratio increases from 35% to 55%,...

If a firm's profit margin increases by 8%, the debt-to-equity ratio increases from 35% to 55%, and asset turnover falls by 20%, the effect on ROE is ______. A. +1.6% B . +0.24% C . -0.8% If a firm's profit margin increases by 8%, the debt-to-equity ratio increases from 35% to 55%, and asset turnover falls by 20%, the effect on ROE is ______. A. +1.6% B . +0.24% C . -0.8% Which of the following financial ratios is NOT...

Question