Measuring Profitability: Ratios and Definitions

Question 1

ROE

Answer 1

(Operating ROA) + (spread x Net Financial Leverage)

Question 2

Operating ROA

Answer 2

NOPAT / Net Assets

Question 3

Net Assets (Operating Assets)

Answer 3

Operating working capital + Net Long term Assets

Question 4

NOPAT

Answer 4

Net Income + NIEAT

Question 5

Net Int. Expense after Taxes NIEAT

Answer 5

(Int. Ex - Int. Income) x (1 - tax rate)

Question 6

Spread

Answer 6

Operating ROA - NIRAT

Question 7

Net Interest Rate after Taxes

Answer 7

NIEAT / Net Debt

Question 8

Net Debt

Answer 8

Int. Liabilities - (cash + mkt securities)

Question 9

Net Long-term Assets

Answer 9

LT Assets - Non-Int. Liabilities

Question 10

Financial Leverage

Answer 10

Net financial leverage x Spread

Question 11

Net financial leverage

Answer 11

Net Debt / Common Equity

Question 12

Operating working capital

Answer 12

Current assets - (cash+mkt securities) - current liabilities - (ST Debt + current LT Debt)

Question 13

Operating ROA Operating ROE

Answer 13

NOPAT Margin x (Operating Asset TO)

Question 14

Capital

Answer 14

[(ST Debt + LT Debt)] + (Shareholder Equity)

Question 15

Net Capital

Answer 15

Net Debt + Shareholder Equity