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Assignment #6: Chapter 8: Exercises

This document contains an assignment with 6 questions about financial metrics like return on net operating assets, return on common equity, net operating profit after tax (NOPAT) margin, and net operating asset turnover. The questions ask about how these metrics differ, when assets can be excluded from calculations, how income must be adjusted for capital base, the relationship between return on net operating assets and sales, possible reasons why an acquisition may lower return on net operating assets, and strategic recommendations based on given metrics for two companies.

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128 views1 page

Assignment #6: Chapter 8: Exercises

This document contains an assignment with 6 questions about financial metrics like return on net operating assets, return on common equity, net operating profit after tax (NOPAT) margin, and net operating asset turnover. The questions ask about how these metrics differ, when assets can be excluded from calculations, how income must be adjusted for capital base, the relationship between return on net operating assets and sales, possible reasons why an acquisition may lower return on net operating assets, and strategic recommendations based on given metrics for two companies.

Uploaded by

smc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 8: Exercises

Assignment #6

1. How do return on net operating assets and return on common equity differ?
2. Discuss the motivation for excluding “nonproductive” assets from invested capital when
computing return. What circumstances justify excluding intangible assets from invested
capital?
3. Why must income used in computing return on invested capital be adjusted to reflect
the capital base (denominator) used in the computation?
4. What is the relation between return on net operating assets and sales? Consider both
NOPAT sales and sales to net operating assets in your response.
5. Company A acquires Company B because the latter has a NOPAT margin exceeding the
industry norm. After acquisition, a shareholder complains that the acquisition lowered
return on net operating assets. Discuss possible reasons for this occurrence.
6. Company X’s NOPAT margin is 2% of sales. Company Y has a net operating asset
turnover of 12. Both companies’ RNOA are 6% and are considered unsatisfactory by
industry norms. What is the net operating asset turnover of Company X? What is the
NOPAT margin for Company Y? What strategic actions do you recommend to the
managements of the respective companies?

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