Question

Compute ROE and RNOA with Disaggregation
Selected balance sheet and income statement information for Home Depot follows.

$ millions	Jan. 31, 2016	Feb. 01, 2015
Operating assets	$40,583	$38,473
Nonoperating assets	2,241	1,748
Total assets	42,824	40,221
Operating liabilities	15,018	13,527
Nonoperating liabilities	21,285	17,167
Total liabilities	36,303	30,694
Total stockholders' equity	6,521	9,527
Sales	88,999
Net operating profit before tax (NOPBT)	12,024
Nonoperting expense before tax	778
Tax expense	4,088
Net income	7,158

Round answers to two decimal places (ex: 0.12345 = 12.35%)

a. Compute return on equity.
Answer

%

b. Compute return on net operating assets (RNOA).
Answer

%

c. Use ROE and RNOA to determine the nonoperating return for the year.
Answer

%

d. Disaggregate RNOA into components of profitability and productivity and show that the product of the two components equals RNOA.
NOPM Answer

%
NOAT Answer

RNOA Answer

%

Answer 1

	Particulars		Jan 31,2016	Feb 01,2015
	Operating Assets	A	40,583	38,473
	Non Operating Assets	B	2,241	1,748
	Net Operating Assets	A-B	38,342	36,725
	Total Assets	C	42,824	40,221
	Operating Liabilities	D	15,018	13,527
	Non Operating Liabilities	E	21,285	17,167
	Total Liabilities	F	36,303	30,694
	Total Equity	G	6,561	9,527
	Sales	H	88,999
	NOPBT	I	12,024
	Non Operating expense before tax	J	778	11,246
	Profit before tax	K=I-J	11,246
	Tax	L	4,088	36.35%
	Net Income	M	7,158
	Tax Rate	N=L/K	36.35%
	NOPAT	O=I*(1-N)	7,653
1	Return on Equity, ROE (Net Income/ Avg Equity)	L/Avg Equity	7158/{(6561+9527)/2}	88.99%
2	RNOA (NOPAT/ Avg Net Op. Assets)	O/Avg Net Op. Asset	7653/{(38342+36725)/2}	20.39%
3	Return on Non Operating Asset (ROE - RNOA)			68.60%
4	NOPM (NOPAT/Sales)	O/H		8.60%
	NOAT (Sales/Average NOA)	H/Average Net Op. Assets	88999/{(38342+36725)/2}	2.37
	RNOA= NOPM*NOAT			20.39%

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