Question

Snap-On Incorporated
Consolidated Statements of Earnings
(Amounts in millions)		For the fiscal year ended
		2013	2012
Net sales		$3,056.50	$2,937.90
Cost of goods sold		-1,583.60	-1,547.90
Gross profit		1,472.90	1,390.00
Operating expenses		-1,012.40	-980.3
Operating earnings before financial services		460.5	409.7
Financial services revenue		181	161.3
Financial services expenses		-55.3	-54.6
Operating income from financial services		125.7	106.7
Operating earnings		586.2	516.4
Interest expense		-56.1	-55.8
Other income (expense) -- net		-3.9	-0.4
Earnings before income taxes and equity earnings		526.2	460.2
Income tax expense		-166.7	-148.2
Earnings before equity earnings		359.5	312
Equity earnings, net of tax		0.2	2.6
Net earnings		359.7	314.6
Net earnings attributable to noncontrolling interests		-9.4	-8.5
Net earnings attributable to Snap-on Incorporated		$350.30	$306.10
Snap-On Incorporated
Consolidated Balance Sheets
	Fiscal Year End
(Amounts in millions)	2013	2012
Cash and cash equivalents	$217.60	$214.50
Trade and other accounts receivable - net	531.6	497.9
Finance receivables - net	374.6	323.1
Contract receivables - net	68.4	62.7
Inventories - net	434.4	404.2
Deferred income tax assets	85.4	81.8
Prepaid expenses and other assets	84.2	84.8
Total current assets	1,796.20	1,669.00
Property and equipment - net	392.5	375.2
Deferred income tax assets	57.1	110.4
Long-term finance receivables - net	560.6	494.6
Long-term contract receivables - net	217.1	194.4
Goodwill	838.8	807.4
Other intangibles - net	190.5	187.2
Other assets	57.2	64.1
Total assets	$4,110.00	$3,902.30
Notes payable and current maturities of long-term debt	$113.10	$5.20
Accounts payable	155.6	142.5
Accrued benefits	48.1	50.6
Accrued compensation	95.5	88.3
Franchisee deposits	59.4	54.7
Other accrued liabilities	243.7	247.9
Total current liabilities	715.4	589.2
Long-term debt	858.9	970.4
Deferred income tax liabilities	143.8	127.1
Retiree health care benefits	41.7	48.4
Pension liabilities	135.8	260.7
Other long-term liabilities	84	87.5
Total liabilities	1,979.60	2,083.30
Preferred stock	–	–
Common stock	67.4	67.4
Additional paid-in capital	225.1	204.6
Retained earnings	2,324.10	2,067.00
Accumulated other comprehensive income (loss)	-44.8	-124.2
Treasury stock at cost	-458.6	-412.7
Total shareholders’ equity attributable to Snap-on Inc.	2,113.20	1,802.10
Noncontrolling interests	17.2	16.9
Total shareholders’ equity	2,130.40	1,819.00
Total liabilities and shareholders’ equity	$4,110.00	$3,902.30
Required:
a. Compute net operating profit after tax (NOPAT) for 2013 and 2012. Assume that combined federal and state statutory tax rate is 37% for both fiscal years.
b. Compute net operating assets (NOA) for 2013 and 2012.
c. Compute return on net operating assets (RNOA) for 2013 and 2012. Comment on the year-over-year change. Net operating assets are $2,329.6 million in 2011.
d. Disaggregate RNOA into profitability and asset turnover components (NOPM and NOAT, respectively). Remember to include both net sales and financial services revenue in total revenue. What explains the year-over-year change in RNOA?
e. Compute net nonoperating expenses (NNE) for 2013 and 2012. Assume that combined federal and state statutory tax rate is 37% for both fiscal years.
f. Compute net nonoperating obligations (NNO) for 2013 and 2012.
g. Compute Spread for 2013 and 2012. Return on net operating assets is 14.5% and 14.3% in 2013 and 2012, respectively. In 2011, net nonoperating obligations were $798.5 million.
h. Compute FLEV for 2013 and 2012. In 2011, net nonoperating obligations were $798.5 million and total shareholders’ equity was $1,547.3 million.
i. Calculate return on equity (ROE) for both years. Show that ROE = RNOA + (FLEV × Spread) x NCI ratio. Interpret the year-over-year change in ROE. In 2011, shareholders’ equity attributable to Snap-On was $1,530.9. Hint: consider the changes in both FLEV and Spread)

Answer 1