Ssim Question 12 20 points The following are summary income

Ssim 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%. 2002 2003 2004 2005 Sales Core operating expenses Core operating income Unusual operating income 1,985 1,846 139 2,064 1,919 145 45 100 8 92 2,147 1,997 150 60 210 1,906 1,773 133 133 7 126 139 Net financial expense Comprehensive income 8 131 201 Net operating assets Net financial obligations Common equity 983 155 795828847 945 150 1,022 175 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

2003 2004 2005 A Comprehensive income 131 92 201 B Beginning of year Common Equity 795 828 847 943 C=A/B Return on common equity( ROCE) 0.16478 0.111111 0.237308 Return on common equity( ROCE)percentage 16.48% 11.11% 23.73% D Net Operating Assets 945 983 1022 1063 E=A/D Return on net operating assets(RNOA) 0.138624 0.093591 0.196673 Return on net operating assets(RNOA)Percentage 13.86% 9.36% 19.67% F Core operating income 139 145 150 G=F/D Core return on net operating assets(Core RNOA) 0.14709 0.147508 0.146771 Core return on net operating assets(Core RNOA)percentage 14.71% 14.75% 14.68% H Increase in net operating assets 38 39 41 I=A-H Free cash Flow 93 53 160 J Increase in common equity 33 19 96 K=A-J Net payment to common shareholders 98 73 105