Compute the DuPont Disaggregation of ROE Refer to the balance sheets and income statement below for Facebook Inc. FACEBOOK INC.Consolidated Statement of IncomeFor Year Ended December 31, $ millions 2018Revenue $57,449Costs and expenses Cost of revenue 10,966Research and development 11,884Marketing and sales 7,846General and administrative 5,062Total costs and expenses 35,758Income from operations 21,691Interest and other income (expense), net 2,059Income before provision for income taxes 23,750Provision for income taxes 3,249Net income $20,501 FACEBOOK INC.Consolidated Balance SheetAt December 31, $ millions 2018 2017Current assets Cash and cash equivalents $11,630 $8,079Marketable securities 31,095 35,243Accounts receivable, net 9,198 5,832Prepaid expenses and other current assets 1,779 1,020Total current assets 53,702 50,174Property and equipment, net 24,683 15,332Intangible assets, net 1,294 1,884Goodwill 19,912 19,832Other assets 2,576 2,135Total assets $102,167 $89,357Current liabilities Accounts payable $820 $380Partners payable 2,152 2,001Accrued expenses and other current liabilities 5,509 2,892Deferred revenue and deposits 1,758 98Total current liabilities 10,239 5,371Other liabilities 6,190 6,417Total liabilities 16,429 11,788Stockholders' equity Common stock and additional paid-in capital 42,906 42,195Accumulated other comprehensive loss (760) (227)Retained earnings 43,592 35,601Total stockholders' equity 85,738 77,569Total liabilities and stockholders' equity $102,167 $89,357 a. Compute return on equity (ROE). Numerator Denominator ROEAnswer 1Net incomeAnswer 2RevenueAnswer 320,501,000Answer 457,449,00035.69 b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage. Numerator Denominator ROAAnswer 5RevenueAnswer 6Average assetsAnswer 720,501,000Answer 8102,167,00020.07 Numerator Denominator FLAnswer 9Average assetsAnswer 10Average equityAnswer 1157,449,000Answer 1268,174,0000.84 Ratio NumberROA Answer 130.3007FL Answer 142.2725ROE 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 PMAnswer 15Net incomeAnswer 16Average equityAnswer 1720,501,000Answer 1830,000,00068.34 Numerator Denominator ATAnswer 19Net incomeAnswer 20Average equityAnswer 2157,449,000Answer 22102,167,0000.56 d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL. Ratio NumberPM Answer 230.356AT Answer 240.563FL Answer 251.191ROE 0.24 ***ROE may be different from ROE calculation in part a. due to rounding
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 $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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