In: Accounting
Use the following selected balance sheet and income statement data for Mattel Inc. (in $ thousands) to compute a) return on equity, b) profit margin (PM), c) asset turnover (AT), and d) financial leverage (FL) for fiscal 2013. Show that ROE = PM × AT × FL.
(in thousands) |
2013 |
2012 |
Net sales |
$6,484,892 |
$6,420,881 |
Operating income |
1,168,103 |
1,021,015 |
Interest expense |
5,555 |
6,841 |
Net income |
903,944 |
776,464 |
Total assets |
6,439,626 |
6,526,785 |
Total liabilities |
3,188,067 |
3,459,741 |
Answer :-
a) Return on Equity (ROE)= Net Income / Average Stockholders' Equity
Net Income for 2013 = $903,944
Now we first find out the Stockholders' Equity.
Total Assets = Total liabilities + Stockholders' Equity
Therefore, Stockholders' Equity = Total Assets - Total liabilities
2013 | 2012 | |
Total assets |
$6,439,626 |
$6,526,785 |
Less :- Total liabilities |
$3,188,067 |
$3,459,741 |
Stockholders' Equity | $3,251,559 | $3,067,044 |
Average Shareholders Equity = ( Shareholders Equity of 2013 + Shareholders Equity of 2012) /2
Average Shareholders Equity = ( $3,251,559 + $3,067,044) / 2
Average Shareholders Equity = $3,159,301.5
Return on Equity = $903,944/ $3,159,301.5
Return on Equity = 0.2861 or 28.61%
b) Profit Margin (PM) = Net Income / Net Sales
Net Income for 2013 = $ 903,944
Net Sales = $6,484,892
Profit Margin = $903,944 / $6,484,892
Profit Margin = 0.1394 or 13.94%
c) Asset Turnover (AT)= Net Sales / Average Assets
Net sales = $ 6,484,892
Average Assets = ( Total Assets of 2013 + Total Assets of 2012)/2
Average assets = ( $6,439,626 + $6,526,785 )/2
Average Assets = $6,483,205.5
Asset Turnover = $6,484,892 / $6,483,205.5
Asset Turnover = 1.00
d) Financial leverage (FL)= Average Assets / Average Stockholders' Equity
Average Assets = $6,483,205.5
Average Stockholders' Equity = $3,159,301.5
Financial leverage = $6,483,205.5 / $3,159,301.5
Financial leverage = 2.0521
.
As ROE = PM × AT × FL
=> 28.61% = 13.94% × 1.00 × 2.0521
=> 28.61% = 28.61%
Thus , ROE = PM × AT × FL.