c. Compute the percentage of RNOA to ROE, and compute Macy\'s nonoperating retur
ID: 2508658 • Letter: C
Question
c. Compute the percentage of RNOA to ROE, and compute Macy's nonoperating return for 2015. E4-36. Compute and Compare ROE, ROA, and RNOA Refer to the balance sheet and income statement information for Oracle Corporation in E4-34. a. Compute return on equity (ROE). b. Compute return on net assets (ROA). C. Compute return on net operating assets (RNOA). d. Compare the three return metrics and explain what each one measures. Compute and Interpret Liquidity and Solvency Ratios Selected balance sheet and income statement information from Comcast Corporation for 2015 and 2014 follows ($ millions). EA-37. Income Before Interest and Assets Liabilities Taxes Expense Liabilities* Total Total Current Current Stockholders Equity $53,978 53,068 Interest Total 2015... $12,303 $18,178 $15,673 $2,702 $112,596 2014. 13,531 17,41015,001 2,617106,118 Includes redeemable noncontroling interests a. Compute the current ratio for each year and discuss any trend in liquidity. Do you believe the com- b. Comput c. What is your overall assessment of the company's liquidity and solvency from the analyses in parts pany is sufficiently liquid? Explain. What additional information about the accounting n comprising this ratio might be useful in helping you assess liquidity? Explain. ticeable change. a and b? Explain. Hint: Compare the ratios for Comcast to those provided in the module for publicly te times interest earned and the liabilities-to-equity ratio for each year and discuss any no- traded companiesExplanation / Answer
E4-37
a. Current Ratio = Current Assets/Current Liabilities
2014 = 13,531/17,410 = 0.78
2015 = 12,303/18,178 = 0.68
A general rule to assess whether a company is liquid is by checking if its current assets are able to cover its current liabilities. In this case, the CA, is lesser than its CL, which is not the most ideal scenario. Additional information that would help in determining how liquid the company is, is details of Cash in hand.
b. Times interest earned = EBIT/Interest expense
2014 = 15,673/2,702 = 5.80
2015 = 15,001/2,617 = 5.73
Liabilities to equity ratio =
2014 = 112,596/53,978 = 2.09
2015 = 106,118/53,068 = 2.00
There is no significant change in these 2 ratios.
c. Overall, the company is in a fairly decent position as its ability to cover interest is good and its capital structure is also ideal. However, in terms of liquidity, the company needs to improve as its current assets or not enough to cover the the current liabilities. This might lead to a cash crunch situation.
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