(Answered)-Below are some summary numbers for a firm for fiscal years 2014 - (2025 Updated Original AI-Free Solution

Question

Below are some summary numbers for a firm for fiscal years 2014 and 2015 (in millions of

dollars).

(a) Calculate return on common equity (ROCE), return on net operating assets (RNOA), and net borrowing cost (NBC) for the two years.

ROCE= CI/Average CSE

+(FLEV*(RNOA-NBC)

/CSE

Earnings/Average CSE

ROCE /..89%

ROCE /..36%

(After tax)/Average NOA(Return on Net Operating Assets)

RNOA /..5%

RNOA /..6%

-CSE

NFO

NFO

(after tax)/Average NFO(Net Borrowing Cost)???????????

NBC /(4903-3503)..0%

NBC /(4949-2149)..5%

The RNOA difference between 2014 an 2015

= 15.6- 17.5= - 1.9%

SPREAD= RNOA-NBC(Operating Leverage)

Spread2014 = 17.5%- 4% = 13.5%

Spread2015 = 15.6%-3.5= 12.1%

The SPREAD difference between 2014 an 2015

= 12.1%-13.5% = -1.40%

/CSE (Financial Leverage)

FLEV2014 = NFO/CSE /3503= 0.400

FLEV2015 = NFO/CSE = 2800/2149 = 1.303

+(FLEV*(RNOA-NBC)

?ROCE= ?RNOA + (? Spread * Flev₂₀₀₄) + (?Flev ( Spread₂₀₁₅)

??????????? = - 1.9% + (-1.4% * 0.4) + (0.903*12.1%)

??????????? = 8.47%

Profit Margin

PM2014 = OI (after tax)/Sales = 858/12257= 7.00%

PM2015 = 772/12867 = 6.00%

?PM = 6.0-7.0 = -1.0%

Asset turnover

ATO2014 = Sales/NOA = 12257/4903= 2.50%

ATO2015 /4949 = 2.60%

?ATO = 2.6-2.5 = 0.1%

?RNOA = Change PM *ATO₂₀₀₄ + (? ATO * PM₂₀₀₅)

??????????????????????? =-1.0% * 2.5 + (.1 *6.0%)

??????????????????????? =-1.9%

(b) How much of the change in ROCE over the two years is due to:

(I) Change in profit margin

-2.5%

(II) Change in asset turnover

0.6%

(III) Change in financial leverage

10.93%

(IV) Change in borrowing costs?

NBC = 0.4 * 0.5% = 0.2%

Spread= -0.56

Hi How can i calculate that change profit margin and change in asset turnover and change in financial leverage ?