fsa3em塔od3.pptVIP

Derivation of Nonoperating Return Formula * Special Topics – Discontinued Operations Discontinued operations - Discontinued operations are subsidiaries or business segments that the board of directors has formally decided to divest. Companies must report discontinued operations on a separate line, below income from continuing operations. The net assets of discontinued operations should be considered to be nonoperating (they represent an investment once they have been classified as discontinued) and their after-tax profit (loss) should be treated as nonoperating as well. Although the ROE computation is unaffected, the nonoperating portion of that return will include the contribution of discontinued operations. * Special Topics – Preferred Stock The ROE formula takes the perspective of the common shareholder in that it relates the income available to pay common dividends to the average common shareholder investment. Thus, the presence of preferred stock requires two adjustments to the ROE formula (called ROCE). Preferred dividends must be subtracted from net income in the numerator. Preferred stock must be subtracted from stockholders’ equity in the denominator. * Special Topics – Noncontrolling Interest Noncontrolling interest is included in stockholders’ equity under current GAAP. The income statement parses net income into that attributable to the parent company shareholders and that attributed to noncontrolling interests. To compute ROE, use the net income attributable to company shareholders divided by the average stockholders’ equity where equity excludes noncontrolling interest. * Walmart * Appendix 3B:DuPont Disaggregation Analysis Profit margin is the amount of profit that the company earns from each dollar of sales. Asset turnover is a productivity measure that reflects the volume of sales that a company generates from each dollar invested in assets. Financial leverage measures the degree to which the company finances its assets with debt rathe