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.

Answer 1

a)   Computation of Net operating profit after tax  

2013                          2012

   (millions)    (millions)

Revenue                                                                                           3,056.50                     2,937.90

less: Cost of goods sold                                                                     (1,583.60)                    (1,547.90)

         operation expense                                                                     (1,012.40)                     ( 980.3)

Operating Income                                                                                  460.5                           409.7

less: Interest expenses                                                                          (55.8)                           (56.1)

        Tax (404.7 * 37%) (353.6 * 37%)                                                    (149.739)                      (130.832)

NET OPERATING PROFIT AFTER TAX                                                  $ 254.961                     $222.768

b)   Calculation of Net Operating Assets

Net operating assets = operating assets - operating libalities

operating assets = Total assets - cash

operating liabilities = Total liabilities - long term debt- short term debt

2013 = (Total assets - cash) - (Total liabilities - long term debt)

         = (4,110.00 - 217.6) - (1,979.60 - 858.9)

         = 3,892.4 - 1,120.7

         = $ 2,771.7

2012 = (3,902.3 - 214.5) - (2,083.3 - 970.4)

        = 3,687.8 - 1,112.9

        = $ 2,574.9

c) Calculation of return on net operating assets

     Return on net operating assets = Net Income / Fixed Assets + Net Working Capital

     Net Working Capital = Current assets - Current Liabilities

   2013 = $254.961 / 392.5 + (1,796.2 - 715.4)

           = $ 254.961/ 1,473.3

           = 0.17305 or 17.305%

   2012 = $ 222.768 / 375.2 + (1,669.00 - 589.2)

           = $222.768 / 1,455

           = 0.1531 or 15.31 %