Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Compute the DuPont Disaggregation of ROE
Refer to the balance sheets and income statement below for Facebook Inc.
| FACEBOOK INC. | |
|---|---|
| Consolidated Statement of Income | |
| For Year Ended December 31, $ millions | 2018 |
| Revenue | $56,894 |
| Costs and expenses | |
| Cost of revenue | 10,411 |
| Research and development | 11,329 |
| Marketing and sales | 7,846 |
| General and administrative | 4,507 |
| Total costs and expenses | 34,093 |
| Income from operations | 22,801 |
| Interest and other income (expense), net | 1,504 |
| Income before provision for income taxes | 24,305 |
| Provision for income taxes | 3,249 |
| Net income | $21,056 |
| FACEBOOK INC. | ||
|---|---|---|
| Consolidated Balance Sheet | ||
| At December 31, $ millions | 2018 | 2017 |
| Current assets | ||
| Cash and cash equivalents | $11,075 | $8,079 |
| Marketable securities | 31,095 | 34,688 |
| Accounts receivable, net | 8,643 | 5,832 |
| Prepaid expenses and other current assets | 1,779 | 1,020 |
| Total current assets | 52,592 | 49,619 |
| Property and equipment, net | 24,683 | 14,777 |
| Intangible assets, net | 1,294 | 1,884 |
| 19,357 | 19,277 | |
| Other assets | 2,576 | 2,135 |
| Total assets | $100,502 | $87,692 |
| Current liabilities | ||
| Accounts payable | $820 | $380 |
| Partners payable | 1,597 | 1,446 |
| Accrued expenses and other current liabilities | 5,509 | 2,892 |
| Deferred revenue and deposits | 1,203 | 98 |
| Total current liabilities | 9,129 | 3,760 |
| Other liabilities | 6,190 | 6,417 |
| Total liabilities | 15,319 | 10,177 |
| Common stock and additional paid-in capital | 42,906 | 42,696 |
| Accumulated other comprehensive loss | (760) | (227) |
| 43,037 | 35,046 | |
| Total stockholders' equity | 85,183 | 77,515 |
| Total liabilities and stockholders' equity | $100,502 | $87,692 |
a. Compute
| Numerator | Denominator | ROE | |
|---|---|---|---|
| Answer | Answer | ||
| Answer | Answer |
b. Apply the DuPont disaggregation into
| Numerator | Denominator | ROA | |
|---|---|---|---|
| Answer | Answer | ||
| Answer | Answer |
| Numerator | Denominator | FL | |
|---|---|---|---|
| Answer | Answer | ||
| Answer | Answer |
| Ratio | Number | |
|---|---|---|
| ROA | Answer | |
| FL | Answer | |
| ROE |
***ROE may be different from ROE calculation in part a due to rounding
c. Calculate the profitability and productivity components of ROA.
| Numerator | Denominator | PM | |
|---|---|---|---|
| Answer | Answer | ||
| Answer | Answer |
| Numerator | Denominator | AT | |
|---|---|---|---|
| Answer | Answer | ||
| Answer | Answer |
d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL.
| Ratio | Number | |
|---|---|---|
| PM | Answer | |
| AT | Answer | |
| FL | Answer | |
| ROE |
|
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