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Compute the DuPont Disaggregation of ROE
Refer to the
FACEBOOK INC.
Consolidated Statement of Income
For Year Ended December 31, $ millions 2018
Revenue $57,449
Costs and expenses
Cost of revenue 10,966
Research and development 11,884
Marketing and sales 7,846
General and administrative 5,062
Total costs and expenses 35,758
Income from operations 21,691
Interest and other income (expense), net 2,059
Income before provision for income taxes 23,750
Provision for income taxes 3,249
Net income $20,501
FACEBOOK INC.
Consolidated Balance Sheet
At December 31, $ millions 2018 2017
Current assets
Cash and cash equivalents $11,630 $8,079
Marketable securities 31,095 35,243
Accounts receivable, net 9,198 5,832
Prepaid expenses and other current assets 1,779 1,020
Total current assets 53,702 50,174
Property and equipment, net 24,683 15,332
Intangible assets, net 1,294 1,884
Goodwill 19,912 19,832
Other assets 2,576 2,135
Total assets $102,167 $89,357
Current liabilities
Accounts payable $820 $380
Partners payable 2,152 2,001
Accrued expenses and other current liabilities 5,509 2,892
Deferred revenue and deposits 1,758 98
Total current liabilities 10,239 5,371
Other liabilities 6,190 6,417
Total liabilities 16,429 11,788
Common stock and additional paid-in capital 42,906 42,195
Accumulated other comprehensive loss (760) (227)
Total stockholders' equity 85,738 77,569
Total liabilities and stockholders' equity $102,167 $89,357
a. Compute return on equity (ROE).
Numerator Denominator ROE
Answer 1
Net income
Answer 2
Revenue
Answer 3
20,501,000
Answer 4
57,449,000
35.69
b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage.
Numerator Denominator ROA
Answer 5
Revenue
Answer 6
Average assets
Answer 7
20,501,000
Answer 8
102,167,000
20.07
Numerator Denominator FL
Answer 9
Average assets
Answer 10
Average equity
Answer 11
57,449,000
Answer 12
68,174,000
0.84
Ratio Number
ROA Answer 13
0.3007
FL Answer 14
2.2725
ROE
0.68
***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 15
Net income
Answer 16
Average equity
Answer 17
20,501,000
Answer 18
30,000,000
68.34
Numerator Denominator AT
Answer 19
Net income
Answer 20
Average equity
Answer 21
57,449,000
Answer 22
102,167,000
0.56
d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL.
Ratio Number
PM Answer 23
0.356
AT Answer 24
0.563
FL Answer 25
1.191
ROE
0.24
***ROE may be different from ROE calculation in part a. due to rounding
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