Question

Compute and Compare ROE, ROA, and RNOA

Selected balance sheet and income statement information for Oracle Corporation follows. (Perform the required computations from the perspective of an Oracle shareholder.

$ millions

May 31, 2015

May 31, 2014

Operating assets

$56,535

$51,447

Nonoperating assets

54,368

38,819

Total assets

110,903

90,266

Operating liabilities

19,847

18,722

Nonoperating liabilities

41,958

24,097

Total liabilities

61,805

42,819

Total Oracle stockholders' equity

48,663

46,878

Total revenues

38,226

Operating income before tax

13,871

Nonoperating expense before tax

1,037

Tax expense

2,896

Net income

9,938


a. Compute return on equity (ROE)
Round answer to two decimal places (ex: 0.12345 = 12.35%)
........%

b. Compute return on net assets (ROA)
Round answers to two decimal places (percentage ex: 0.12345 = 12.35%)
........%

c. Compute return on net operating assets (RNOA)
Round answers to two decimal places (percentage ex: 0.12345 = 12.35%)
.......%

Answer 1

ROE - 20.8%

ROA - 9.88%

RNOA - 20.33%

Step-by-step explanation:

ROE = Net income / Average shareholder equity

Average shareholder equity = 48,633 + 46,878 / 2 = 47,770.50

ROE = 9,938 / 47,770.50

ROE = 20.8%

ROA = Net Income / Average Total Assets

Average total assets = 110,903 + 90,266 / 2 = 100,584.50

ROA = 9,938 / 100,584.50

ROA = 9.88%

RNOA = NOPAT / Average net Operating Assets

Average net Operating Assets = 56,535 + 51,447 / 2 = 53,991

NOPAT = Net Operating income before tax - Tax expense

NOPAT = 13,871 - 2,896 = 10,975

RNOA = 10,975 / 53,991

RNOA = 20.33%