Question 1 Use Southwest Airlines’ 2016 financial statement information, below to answer the following: • • Calculate Southwest Airlines’ return on assets (ROA) for the year ending December 31, 2016. Disaggregate Southwest Airlines’ ROA into profit margin (PM) and asset turnover (AT). Explain what each ratio measures. ($ millions) Total operating revenues $20,425 Net income 2,244 Total assets, beginning of year 21,312 Total assets, end of year 23,286 Equity, end of year 8,441 Question 2 Use the income statement for Microsoft Corporation to compute the following: MICROSOFT CORP.pdf • • • Tax shield The tax on operating profit NOPAT The company’s combined federal and state statutory tax rate is 37.0%. Question 3 Use the following balance sheets and income statements for Valero Energy Corporation to answer the following: Valero Energy Corporation and Subsidiaries.pdf Compute Valero’s return on equity (ROE) for 2016 and 2015. Valero Energy stockholders’ equity in 2014 was $20,677 million. Question 4 Below are selected balance sheet and market data for three shoe companies. ($ millions) Company Year End Company Assets Liabilitie s Number of shares outstanding (in millions) End of year stock price (per share) Nike, Inc. May 31, 2016 21,396 9,138 1,682 $55.22 Skechers, USA, Inc. Dec. 31, 2016 2,394 708 155 $24.58 Caleres, Inc. Jan. 28, 2017 1,475 861 43 $32.82 1. Calculate the market capitalization of each company. 2. Calculate the market to book ratio for each company. 3. Comment on differences you observe. Question 5 Income statements and balance sheets follow for Snap-On Incorporated. Refer to these financial statements to answer the following questions. Snap.pdf 1. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rate is 37% for both fiscal years. 2. Compute net operating assets (NOA) for 2016 and 2015. 3. Compute return on net operating assets (RNOA) for 2016 and 2015. Comment on the year-over-year change. Net operating assets are $3,011.7 million in 2014. 4. Disaggregate RNOA into profitability and asset turnover components (NOPM and NOAT, respectively). Remember to include both net sales and financial services revenue in total revenue. What explains the year-over-year change in RNOA? Question 6 What is the difference between the traditional ROA measure (part of the traditional DuPont analysis) and the return on net operating assets (RNOA)? MICROSOFT CORP. Income Statement June 30, 2016 (in millions) Revenue Product $61,502 Service 23,818 Total revenue 85,320 Cost of revenue Product 17,880 Service and other 14,900 Total cost of revenue 32,780 Gross margin 52,540 Research and development 11,988 Sales and marketing 14,697 General and administrative 4,563 Impairment, integration, and restructuring Operating income 1,110 20,182 Other income (expense) Interest income 903 Gains on investments 668 Interest expense (1,243) Losses on derivatives and other nonoperating expenses Income before taxes Provision for income taxes Net income (759) 19,751 2,953 $16,798 Valero Energy Corporation and Subsidiaries Consolidated Statements of Income (Millions of Dollars) 2016 2015 Operating revenues $ 75,659 $ 87,804 Cost of sales 65,962 73,861 Refining expenses (747) 790 Retail expenses 4,207 4,243 Ethanol expenses 715 710 General and administrative expenses 1,894 1,842 Depreciation and amortization expense 56 0 Total costs and expenses 72,087 81,446 Operating income 3,572 6,358 Other income, net 56 46 Interest and debt expense (446) (433) Income from continuing operations before income tax expense 3,182 5,971 Income tax expense 765 1,870 Net income (loss) 2,417 4,101 Less: Net income (loss) attributable to noncontrolling interests 128 111 Net income attributable to Valero Energy stockholders 2,289 3,990 Costs and expenses: Asset impairment losses VALERO ENERGY CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Millions of Dollars) 2016 2015 Cash and temporary cash investments $ 4,816 $ 4,114 Receivables, net 5,901 4,464 Inventories 5,709 5,898 58 218 316 204 Total current assets 16,800 14,898 Property, plant and equipment, net 26,472 26,703 2,901 2,626 46,173 44,227 115 127 6,357 4,907 694 554 1,084 1,069 Income taxes payable 78 337 Total current liabilities 8,328 6,994 Debt and capital lease obligations, less current portion 7,886 7,208 Deferred income taxes 7,361 7,060 Other long-term liabilities 1,744 1,611 25,319 22,873 7 7 7,088 7,064 (12,027) (10,799) Retained earnings 26,366 25,188 Accumulated other comprehensive income (loss) (1,410) Total Valero Energy stockholders’ equity 20,024 20,527 830 827 20,854 21,354 $ 46,173 $ 44,227 Income taxes receivable Prepaid expenses and other Deferred charges and other assets, net Total assets Current portion of debt and capital lease obligations Accounts payable Accrued expenses Taxes other than income taxes Total liabilities Common stock Additional paid-in capital Treasury stock Noncontrolling interest Total equity Total liabilities and stockholders’ equity (933) Snap-On Incorporated Consolidated Statements of Earnings (Amounts in millions) For the fiscal year ended 2016 2015 Net sales $ 3,430.4 $ 3,352.8 Cost of goods sold (1,720.8) (1,704.5) Gross profit 1,709.6 1,648.3 Operating expenses (1,054.1) (1,053.7) Operating earnings before financial services 655.5 594.6 Financial services revenue 281.4 240.3 Financial services expenses (82.7) (70.1) Operating income from financial services 198.7 170.2 Operating earnings 854.2 764.8 Interest expense (52.2) (51.9) Other income (expense) — net (0.6) (2.4) Earnings before income taxes and equity earnings 801.4 710.5 Income tax expense (244.3) (221.2) Earnings before equity earnings 557.1 489.3 Equity earnings, net of tax 2.5 1.3 Net earnings 559.6 490.6 Net earnings attributable to noncontrolling interests (13.2) (11.9) Net earnings attributable to Snap-on Incorporated $ 546.4 $ 478.7 Snap-On Incorporated Consolidated Balance Sheets Fiscal Year End (Amounts in millions) 2016 2015 Cash and cash equivalents $ 77.6 $ 92.8 Trade and other accounts receivable – net 598.8 562.5 Finance receivables – net 472.5 447.3 Contract receivables – net 88.1 82.1 530.5 497.8 0.0 109.9 116.5 106.3 1,884.0 1,898.7 425.2 413.5 72.8 106.3 Long-term finance receivables – net 934.5 772.7 Long-term contract receivables – net 286.7 266.6 Goodwill 895.5 790.1 Other intangibles – net 184.6 195.0 Other assets 39.9 44.0 Total assets 4,723.2 4,486.9 Notes payable and current maturities of long-term debt 301.4 18.4 Accounts payable 170.9 148.3 Accrued benefits 52.8 52.1 Accrued compensation 89.8 91.0 Franchisee deposits 66.7 64.4 Other accrued liabilities 307.9 296.3 Total current liabilities 989.5 670.5 Long-term debt 708.8 861.7 Deferred income tax liabilities 13.1 169.8 Retiree health care benefits 36.7 37.9 246.5 227.8 93.4 88.5 2,088.0 $ 2,056.2 Inventories – net Deferred income tax assets Prepaid expenses and other assets Total current assets Property and equipment – net Deferred income tax assets Pension liabilities Other long-term liabilities Total liabilities Preferred stock – Common stock 67.4 $ 67.4 317.3 296.3 3,384.9 2,986.9 Additional paid-in capital Retained earnings – Accumulated other comprehensive income (loss) (498.5) (364.2) Treasury stock at cost (653.9) (573.7) Total shareholders’ equity attributable to Snap-on Inc. Noncontrolling interests Total shareholders’ equity Total liabilities and shareholders’ equity 2,617.2 2,412.7 18.0 18.0 2,635.2 2,430.7 $ 4,723.2 $ 4,486.9 …


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