Selected balance sheet and income statement information from Abbott Laboratories for 2018 follows ($ millions). Net income $2,368
Net income attributable to Company shareholders 2,368
Net operating profit after tax (NOPAT) 2,940
Net nonoperating expense (NNE) 572
Average net operating assets (NOA) 48,222
Average net nonoperating obligations (NNO) 17,312
Average total equity 30,910
Average equity attributable to Company shareholders 30,711
Compute the following measures a through h.
a. Return on equity = (Net income attributable to Company shareholders/Average equity attributable to Company shareholders)
Note: Round percentage to one decimal place (for example, enter 6.7% for 6.6555%).
Answer
%
b. RNOA = NOPAT/Average NOA
Note: Round percentage to one decimal place (for example, enter 6.7% for 6.6555%).
Answer%
c. Nonoperating return = ROE − RNOA
Note: Round percentage to one decimal place (for example, enter 6.7% for 6.6555%).
Answer%
d. NNEP = NNE/Average NNO
Note: Round percentage to one decimal place (for example, enter 6.7% for 6.6555%).
Answer%
e. Spread = RNOA − NNEP
Note: Round percentage to one decimal place (for example, enter 6.7% for 6.6555%).
Answer%
f. FLEV = Average NNO/Average total equity
Note: Round amount to two decimal places (for example, enter 6.78 for 6.77555).
Answer
g. NCI ratio = (Net income attributable to Company shareholders/Net income)/(Average equity attributable to Company shareholders/Average total equity)
Note: Round amount to two decimal places (for example, enter 6.78 for 6.77555).
Answer
h. ROE = (RNOA + (Spread × FLEV)) × NCI ratio
Note: Round percentage to one decimal place (for example, enter 6.7% for 6.6555%).
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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