Question

Income statements and balance sheets follow for The New York Times Company. Refer to these financial statements to answer the requirements.

The New York Times Company Consolidated Statements of Income
	Fiscal year ended
(in thousands)	Dec. 29, 2016	Dec. 30, 2015
Revenues
Circulation	$ 880,543	$ 851,790
Advertising	580,732	638,709
Other	94,067	88,716
Total revenues	1,555,342	1,579,215
Production costs
Wages and benefits	363,051	354,516
Raw materials	72,325	77,176
Other	192,728	186,120
Total production costs	628,104	617,812
Selling, general and administrative costs	721,083	713,837
Depreciation and amortization	61,723	61,597
Total operating costs	1,410,910	1,393,246
Restructuring charge	14,804	0
Multiemployer pension plan withdrawal expense	6,730	9,055
Pension settlement charges	21,294	40,329
Early termination charge	0	0
Operating profit	101,604	136,585
Loss from joint ventures	(36,273)	(783)
Interest expense, net	34,805	39,050
Income from continuing operations before income taxes	30,526	96,752
Income tax expense/(benefit)	4,421	33,910
Income from continuing operations	26,105	62,842
Loss from discontinued operations, net of income taxes	(2,273)	0
Net income	23,832	62,842
Net loss attributable to the noncontrolling interest	5,236	404
Net income attributable to The New York Times Company common stockholders	$29,068	$63,246

The New York Times Company Consolidated Balance Sheets
	As of
(in thousands)	Dec. 29, 2016	Dec. 30, 2015
Cash and cash equivalents	$ 100,692	$ 105,776
Short-term investments	449,535	507,639
Accounts receivable, net	197,355	207,180
Prepaid assets	15,948	19,430
Other current assets	32,648	22,507
Total current assets	796,178	862,532
Long-term marketable securities	187,299	291,136
Investments in joint ventures	15,614	22,815
Property plant and equipment, net	596,743	632,439
Goodwill	134,517	109,085
Deferred income taxes	301,342	309,142
Miscellaneous assets	153,702	190,541
Total assets	$2,185,395	$2,417,690
Accounts payable	$   104,463	$    96,082
Accrued payroll and other related liabilities	96,463	98,256
Unexpired subscriptions	66,686	60,184
Current portion of long-term debt	0	188,377
Accrued expenses and other	131,125	120,686
Total current liabilities	398,737	563,585
Long-term debt and capital lease obligations	246,978	242,851
Pension benefits obligation	558,790	627,697
Postretirement benefits obligation	57,999	62,879
Other	78,647	92,223
Total other liabilities	942,414	1,025,650
Stockholders’ equity
Common stock of $0.10 par value
Class A common stock	16,921	16,826
Class B convertible stock	82	82
Additional paid-in capital	149,928	146,348
Retained earnings	1,331,911	1,328,744
Common stock held in treasury, at cost	(171,211)	(156,155)
Accumulated other comprehensive loss, net of tax	(479,816)	(509,094)
Total New York Times Company stockholders’ equity	847,815	826,751
Noncontrolling interest	(3,571)	1,704
Total stockholders’ equity	844,244	828,455
Total liabilities and stockholders’ equity	$2,185,395	$2,417,690

Required:

a. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for both years.

b. Compute net operating assets (NOA) for 2016 and 2015.

c.    Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $397,299 thousand in 2014.

d. Compute return on common shareholders equity (ROE) for 2016 and 2015. Stockholders’ equity attributable to New York Times Company in 2014 is $726,328 thousand.

e. What is nonoperating return component of ROE for 2016 and 2015?

f.    Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?

Answer 1

a.				2016		2015
	Operating profit				101604		136585
	Less:
	Income tax expense (From balance sheet)			4421		33910
	Tax shield @ 37%
	On loss from Joint ventures			13421		290
	On interest expense			34805	52647	39050	73250
	Net operating profit after tax				48957		63335
b.	Net operating asset:
				2016	2015
	Operating Assets:
	Accounts receivable, net			197355	207180
	Prepaid assets			15948	19430
	Other current assets			32648	22507
	Property plant and equipment, net			596743	632439
	Goodwill			134517	109085
	Deferred income taxes			301342	309142
	Investments in joint ventures			15614	22815
	Miscellaneous assets			153702	190541
				1447869	1513139
	Operating Liabilities:
	Accounts payable			104463	96082
	Accrued payroll and other related liabilities			96463	98256
	Unexpired subscriptions			66686	60184
	Accrued expenses and other			131125	120686
	Pension benefits obligation			5,58,790	6,27,697
	Postretirement benefits obligation			57,999	62,879
				1015526	1065784
	Net operating asset			432343	447355
c.	RNOA=Net operating profit after taxes/Average net operating assets
				2016	2015
	Net operating profit after tax (a)			48957	63335
	Beginning net operating asset (b)			447355	397299
	Ending net operating asset ©			432343	447355
	Average net operating asset (d)=[(b)+©/2]			439849	422327
	RNOA	(a)/(d)		0.11	0.15
d.	ROE=Net income/Average stockholder's equity
				2016	2015
	Net income (a)			23832	62842
	Beginning stockholder's equity (b)			828455	726328
	Ending stockholder's equity ©			844244	828455
	Average stockholder's equity (d)=[(b)+©/2]			836349.50	777391.50
	ROE	(a)/(d)		0.03	0.08
e.	ROE=Operating return+Non-operating return
	Operating return=RNOA
	Non-operating return=ROE-RNOA
				2016	2015
	ROE			0.03	0.08
	RNOA			0.11	0.15
	Non-operating return			-0.08	-0.07