CBE Question 12 20 points The following are summary income s

CBE Question 12 (20 points) The following are summary income statement and balance sheet numbers for a firm (in millions of dollars). The firm has a required return for operations of 9%. 2003 2004 2005 2002 1,906 133 2,147 1,997 150 60 210 9 201 Sales Core operating expenses Core operating income Unusual operating income 1.773 1,985 1,846 2,064 1,919 145 139 139 131 (45) 133 7 126 100 Net financial expense Comprehensive income 92 Net operating assets Net financial obligations Common equity 945 150 795 983 155 828 1,022 175 847 1,063 120 943 (a) Prepare a table on the next page giving the following for 2003- 2005. Use beginning-of period balance sheet numbers in denominators. Return on common equity (ROCE) \" Return on net operating assets (RNOA) Core return on net operating assets (Core RNOA) Free cash flow . Net payments to common shareholders . Net payments to net debt holders -Asset turnover . Core profit margin . Growth rate for net operating assets

Solution

2002 2003 2004 2005 Sales 1906 1985 2064 2147 Core operating Expense 1773 1846 1919 1997 Core Operating Income 133 139 145 150 Unusual Operating Income 0 0 -45 60 Total Income 133 139 100 210 Net Financial Expense 7 8 8 9 Comprehensive Income 126 131 92 201 Net Operating Asset 945 983 1022 1063 Net Financial Obligation 150 155 175 120 Common Equity 795 828 847 943 (i) Return on common equity (ROCE) 2003 2004 2005 Comprehensive Income/Common Shareholders Equity =131/795 =92/828 =201/847 16.48% 11.11% 23.73% (ii) Return on net operating assets (RNOA) Total Income/Net Operating Asset =139/945 =100/983 =210/1022 14.71% 10.17% 20.55% (iii) Core on Return on net operating assets (RNOA) Core Operating Income/Net Operating Asset =139/945 =145/983 =150/1022 14.71% 14.75% 14.68% (iv) Free Cash Flows C – I = OI – NOA =Operating Income -(diff of closing and opening net operating asset) =139-(983-945) =100-(1022-983) =210-(1063-1022) 101 61 169 (v) Net Payments to Common Shareholder CI – CSE = Net dividend (d) Comprehensive income- net increase in common shareholder equity 131 - (828-795) 92 - (847-828) 201- (943-847) 98 73 105 (vi) Net payment to Net Debt Holder FCF – d =101-98 =61-73 =169-105 3 -12 64 (vii) Asset Turnover Sales/NOA of previous year =1985/945 =2064/983 =2147/1022 2.10 2.10 2.10 (viii) Core Profit Margin Core Operating Income / Sales =139/1985 =145/2064 =150/2147 7.00% 7.03% 6.99% (ix) Growth rate for net operating asset 4.02% 4.00% 4.00%