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3 years ago

Selected balance sheet and income statement information from Abbott Laboratories for 2018 follows ($ millions).

Business

1 answer:

anygoal [31]3 years ago

7 0

Answer:

a. Return on equity = 7.7%

b. RNOA = 6.1%

c. Nonoperating return = 1.6%

d. NNEP = 3.3%

e. Spread = 2.8%

f. FLEV = 56.01%

g. NCI ratio = 1.01

h. ROE = 7.7%

Explanation:

a. Return on equity = (Net income attributable to Company shareholders/Average equity attributable to Company shareholders)

Return on equity = $2,368 / $30,711 = 0.0771059229592003

To convert to percentage, we multiply by 100 as follows:

Return on equity = 0.0771059229592003 * 100 = 7.71059229592003%

Rounding percentage to one decimal place, we have:

Return on equity = 7.7%

b. RNOA = NOPAT/Average NOA

RNOA = Return on net operating assets = $2,940 / $48,222 = 0.0609680228941147

To convert to percentage, we multiply by 100 as follows:

RNOA = 0.0609680228941147 * 100 = 6.09680228941147%

Rounding percentage to one decimal place, we have:

RNOA = 6.1%

c. Nonoperating return = ROE − RNOA

Nonoperating return = Return on equity (ROE) - RNOA = 7.7% - 6.1% = 1.6%

d. NNEP = NNE/Average NNO

NNEP = Net non-operating expense percent = $572 / $17,312 = 0.0330406654343808

To convert to percentage, we multiply by 100 as follows:

NNEP = 0.0330406654343808 * 100 = 3.30406654343808%

Rounding percentage to one decimal place, we have:

NNEP = 3.3%

e. Spread = RNOA − NNEP

Spread = 6.1% - 3.3% = 2.8%

f. FLEV = Average NNO/Average total equity

FLEV = Financial leverage = $17,312 / $30,910 = 0.560077644775154

To convert to percentage, we multiply by 100 as follows:

FLEV = 0.560077644775154 * 100 = 56.0077644775154%

Rounding percentage to two decimal place, we have:

FLEV = 56.01%

g. NCI ratio = (Net income attributable to Company shareholders/Net income)/(Average equity attributable to Company shareholders/Average total equity)

NCI ratio = ($2,368 / $2,368) / ($30,711 / $30,910) = 1 / 0.993561954060175 = 1.00647976295139

Rounding the amount to two decimal places, we have:

NCI ratio = 1.01

h. ROE = (RNOA + (Spread × FLEV)) × NCI ratio

ROE = (6.1% + (2.8% * 56.01%)) * 1.01 = 0.077449628

To convert to percentage, we multiply by 100 as follows:

ROE = 0.077449628 * 100 = 7.7449628%

Rounding percentage to one decimal place, we have:

ROE = 7.7%

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