Question

Compute, Disaggregate, and Interpret RNOA of CompetitorsHalliburton and Schlumberger compete in the oil field services sector. Refer to the following 2018 financial data for the two companies to answer the requirements.$ millions HAL SLBTotal revenue $23,995 $32,815Pretax net nonoperating expense 653 426Net income 1,657 2,177Average operating assets 23,361 67,836Average operating liabilities 5,888 16,499Marginal tax rate 22% 19%Return on equity 18.56% 5.86%a. Compute return on net operating assets (RNOA) for each company.b. Disaggregate RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company.Do not round until your final answer. Round answers to two decimal places (percentage example: 0.12345 = 12.35%). HAL SLBRNOA Answer AnswerNOPM Answer AnswerNOAT Answer Answer

Answer 1

a. Return on net operating assets (RNOA) = Net Operating Income after tax / Average Net Operating Assets

Net Operating Income after Tax HAL SLB

Net Income (before tax) 2,124 2,688

Add : Pre tax net non operating Expense 653 426

Net Operating Income before Tax 2,777 3,114

Marginal Tax Rate 22% 19%

Less Tax Expense -611 -592

Net Operating Income after tax 2,166 2,522

Net Income before tax = (Net Income (after tax)*1/(1 -Tax Rate)

Hal = 1,657 * 1/(1 - 22%)

= $2,124

SLB = 2,177 1/(1 - 22%)

= $2,688

HAL SLB

Average Operating Assets 23,361 67,836

Average Operating Liability 5,888 16,499

Average Net Operating Assets 17,473 51,337

Return on net operating assets (RNOA) 12.40% 4.91%

B. Net Operating Profit Margin = Net Operating Profits after tax/ Total Revenue

HAL SLB

Net Operating Income after tax 2,166 2,522

Total Revenue 23,995 32,815

Net Operating Profit Margin 9.03% 7.69%

Net Operating Asset Turnover = Total Revenue/ Average Net Operating Assets

HAL SLB

Total Revenue 23,995 32,815

Average Net Operating Assets 17,473 51,337

Net Operating Asset Turnover 1.37 times 0.64 times