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Homework answers / question archive / Compute and Interpret ROA, Profit Margin, and Asset Turnover of Competitors Selected balance sheet and income statement information for McDonald's Corporation and Yum! Brands, Inc
Compute and Interpret ROA, Profit Margin, and Asset Turnover of Competitors
Selected balance sheet and income statement information for McDonald's Corporation and Yum! Brands, Inc., follows (in millions).
SalesRevenue InterestExpense NetIncome AverageTotalAssets
McDonalds $22,820 $921 $5,192 $32,414
Yum! Brands $5,878 $440 $1,340 $5,382
a. Compute the return on assets (ROA) for each company. Assume a tax rate of 35%. Do not round until your final answer.
Round answer to one decimal place (i.e., 0.2568 = 25.7%).
McDonalds ? %
Yum! Brands ?%
b. Disaggregate ROA into profit margin (PM) and asset turnover (AT) for each company.
Do not round until your final answers. Round PM and ROA to one decimal place (i.e., 0.2568 = 25.7%).
Round AT to 3 decimal places.
PM X AT=ROA
McDonalds ?% ? =?%
Yum! Brands ?% ? =?%
1) Computation of Return on Assets (ROA):
Return on Assets (ROA) = Net income / Average total assets
ROA McDonalds = 5,790.65 / 32,414 = 17.86%
ROA Yum brands = 1,626 / 5,382 = 30.21%
Workings:
McDonalds = 5,192 + (921*(1-35%)) = 5,790.65
Yum brands = 5,382 + (440*(1-35%)) = 1,626
2)
| Profit Margin(PM) | * | Asset Turnover (AT) | = | ROA | |
| McDonalds | 25.38% | 0.704 | 17.87% | ||
| Yum brands | 27.66% | 1.092 | 30.20% | ||
| Profit Margin(PM) | * | Asset Turnover (AT) | = | ROA | |
| McDonalds | =5790.65/22820 | =22820/32414 | =25.38%*0.704 | ||
| Yum brands | =1626/5878 | =5878/5382 | =27.66%*1.092 | ||
