E3-25. Compute and Interpret RNOA,Profit Margin, and Asset Turnover of Competito

Question

E3-25. Compute and Interpret RNOA,Profit Margin, and Asset Turnover of Competitors Selected balance sheet and income statement information for drug store retailers CVS Caremark Corp. CYSCAREMARK and Walgreen Co. follows (LO2) (CvS) WALCREEN C (WAG) 2012 Net 2011 Net Assets Assets $46,152 2012 Operating Operating NOPAT 2012 Company (S millions) Ticker Sales CVS $123, WAG 71,633 2,182 21,465 CvS Caremark 133 $4,452 $46,677 15,700 a. Compute the 2012 return on net operating assets (RNOA) for each company b. Disaggregate RNOA into net operating profit margin (NOPM) and net operating asset turnoe (NOAT) for each company Discuss any differences in these ratios for each company. c.

Explanation / Answer

a. Return on net operating assets = NOPAT / Average Operating Assets

CVS Caremark = $4,452 / {($46,152 + $46,677) / 2 } = 9.59%
Walgreen Co. = $2,182 / {($21,465 + $15,700) / 2} = 11.74%

b. Net Operating Profit Margin = NOPAT/ Sales

CVS Caremark = $4,452 / $123,133 = 3.62%
Walgreen Co. = $2,182 / $71,633 = 3.05%

Net operating assets turnover = Sales / Average Operating Assets

CVS Caremark = $123,133 / {($46,152 + $46,677) / 2 } = 2.65
Walgreen Co. = $71,633 / {($21,465 + $15,700) / 2} = 3.85

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