In: Finance
BEP, ROE, AND ROIC
Broward Manufacturing recently reported the following information:
Net income | $285,000 |
ROA | 10% |
Interest expense | $91,200 |
Accounts payable and accruals | $950,000 |
Broward's tax rate is 35%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, while 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Round your answers to two decimal places.
net income (profit after tax) | $285,000 | |
tax @35% so profit before tax | $285000 /65% | $438461.54 |
+interest expense | $91200 | |
EBIT(earnings before interest&tax) | $438461.54+$91200= | $529661.54 |
NOPAT(netoperating profit after tax) | EBIT(1-TAX rate) | $344,280 |
ROA( return on assets)=> net income / total value of assets
total /average value of assets=net income /return on assets
=$285000 /10% =>$2850,000
in the balancesheet total value of assets =total value of equity & liabilities
table 2
total value of equity&liabilities | $2850,000 | |
less: accounts payable | $ 950000 | |
value of equity & debt | $1900,000 | |
value of debt (40% in whole finance) | $1900,000*40% | $760000 |
value of equity(60% in whole finance) | $1900,000*60% | $1140,000 |
1)BASIC EARNING POWER= EBIT / TOTAL VALUE OF ASSETS
=$529,661.54 / $2850,000 =18.58%
2) RETURN ON EQUITY =NET INCOME / AVG.SHAREHOLDERS EQUITY
=$285,000 / $ 1140,000 = 25%
3) RETURN ON INVESTED CAPITAL = NOPAT / INVESTED CAPITAL
=$ 344,280 / $ 2850,000=12.08%
i gave the exact calculations if u want u can round off to the nearest decimals