Analysis and Interpretation of Profitability Balance sheets and income statement

Question

Analysis and Interpretation of Profitability
Balance sheets and income statements for Best Buy Co., Inc. follow.

(a) Compute net operating profit after tax (NOPAT) for 2010. Assume that the combined federal and statutory rate is: 37.0%. (Hint: Treat equity in income of affiliates as operating. Round your answer to the nearest whole number.)

2010 NOPAT = Answer ($ millions)

(b) Compute net operating assets (NOA) for 2010 and 2009. (Hint: Treat the Equity and Other Investments and the Long-Term Liabilities as operating.)

2010 NOA = Answer ($ millions)
2009 NOA = Answer ($ millions)

(c) Compute Best Buy's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2010. (Do not round until final answer. Round two decimal places. Do not use NOPM x NOAT to calculate RNOA.)

2010 RNOA = Answer%
2010 NOPM = Answer%
2010 NOAT = Answer

(d) Compute net nonoperating obligations (NNO) for 2010 and 2009.

2010 NNO = Answer ($ millions)
2009 NNO = Answer ($ millions)

(e) Compute return on equity (ROE) for 2010. (Round your answers to two decimal places. Do not round until your final answer.)

2010 ROE = Answer%

(f) Infer the nonoperating return component of ROE for 2010. (Use answers from above to calculate. Round your answer to two decimal places.)

2010 nonoperating return = Answer%

(g) Which of the following statements reflects the best inference we can draw from the difference between Best Buy's ROE and RNOA?

Consolidated Statements of Earnings For Fiscal Years Ended ($ millions) February 27, 2010 February 28, 2009 March 1, 2008 Revenue $ 49,694 $ 45,015 $ 40,023 Cost of goods sold 37,534 34,017 30,477 Restructuring charges - cost of goods sold -- -- -- Gross Profit 12,160 10,998 9,546 Selling, general and administrative expenses 9,873 8,984 7,385 Restructuring charges 52 78 -- Goodwill and tradename impairment -- 66 -- Operating income 2,235 1,870 2,161 Other income (expense) Investment income and other 54 35 129 Investment impairment -- (111) -- Interest expense (94) (94) (62) Earnings before income tax expense and equity in income of affiliates 2,195 1,700 2,228 Income tax expense 802 674 815 Equity in income of affiliates 1 7 (3) Net earnings including noncontrolling interest 1,394 1,033 1,410 Net income attributable to noncontrolling interest (77) (30) (3) Net income attributable to Best Buy Co., Inc. $ 1,317 $ 1,003 $ 1,407

Explanation / Answer

7. ROE> RNOA implies that Best buy has increased its financial leverage during the period  

1 NOPAT Earnings before Income tax expense and equity in income of affiliates               2,195.00 Add: Interest expense                     94.00 Net Operating Profit               2,289.00 Income tax @37%                  846.93 Net Operating Profit After Tax (NOPAT)               1,442.07 2 Net Operating Assets NOA = Operating Assets - Operating liabilities Operating Assets = All assets - financial assets 2010 2009 Total Assets 18302 15826 Less: Financial Assets Cash and cash equivalents 1826 498 Short term investments 90 11 Operating Assets 16386 15317 Operating Liabilities = Total liabilities - Financial liabilities Total current liabilities 8978 8435 + Long term liabilities 1256 1109 +Long term debt 1104 1126 =Total Liabilities 11338 10670 Long term debt 1104 1126 +Currrent portion of long term debt 35 54 +Short term debt 663 783 =Financial Liabilities 1802 1963 Operating Liabilities = Total liabilities - financial liabilities 9536 8707 NOA = Operating assets - Operating Liabilities 6850 6610 3 RNOA - Return on NOA = NOPAT /NOA Net income attributable to Best buy Co               1,317.00 NOA               6,850.00 RNOA 19.23% Net Operating profit margin = Net Operating Profit / Sales Net operating Profit (NOP)               2,289.00 Sales            49,694.00 NOPM 4.61% Net Operating Asset Turnover = Net operating Asset / Sales NOA               6,850.00 Sales            49,694.00 NOAT                       0.14 4 Net Non operating Obligations = Non operating Liabilities - Non operating Assets 2010 2009 Non operating liabilities = Long term debt+Short term debt+current portion of long term debt 1802 1963 Non Operating Assets = Cash+ Short term investments 1916 509 NNO -114 1454 5 Return on Equity = Net Income / Shareholders'equity Net Income (Attributable to Best Buy Co) 1317 Shareholders'Equity (Total best buy co, shareholders' equity) 6320 ROE 20.84% 6 Non operating return component of ROE = ROE- RNOA ROE 20.84% RNOA 19.23% Non operating return component of ROE 1.61%

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