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

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Chapter1: Financial Statements And Business Decisions
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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
Stockholders' equity        
Common stock and additional paid-in capital    42,906    42,195
Accumulated other comprehensive loss    (760)    (227)
Retained earnings    43,592    35,601
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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