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Compute, Disaggregate, and Interpret RNOA of Competitors Halliburton and Schlumberger compete in the oil field services sector
Compute, Disaggregate, and Interpret RNOA of Competitors Halliburton and Schlumberger compete in the oil field services sector. Refer to the following 2018 financial data for the two companies to answer the requirements.
$ millions HAL SLB Total revenue 528,794 784 2,071 29,201 7,066 22% 18.56% 539,378 511 2,721 84,795 19,799 19% 5.86% Pretax net nonoperating expense Net income Average operating assets Average operating liabilities Marginal tax rate Return on equity
a. Compute return on net operating assets (RNOA) for each company. b. Disaggregate RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company. Do not round until your final answer. Round answers to two decimal places (percentage example: 0.12345 = 12.35%).
Expert Solution
a) Computation of Return on Net Operating Assets (RNOA):
Return on Net Operating Assets (RNOA) = Net Operating Income after tax / Average Net Operating Assets
Here,
| Computation of Net Operating Profit after Tax | Amount | Amount |
| Particulars | HAL | SLB |
| Net Income (after tax) | 2,071 | 2,721 |
| Marginal Tax Rate | 22% | 19% |
| Net Income (before tax) | 2,655 | 3,359 |
| (Net Income (after tax)*1/(1-Tax Rate) | ||
| Add : Pretax Net non-operating Expense | 784 | 511 |
| Net Operating Income before tax | 3,439 | 3,870 |
| Marginal Tax Rate | 22% | 19% |
| Less: Tax Expense (Net Operating Income*before tax*Marginal Tax Rate) | 757 | 735 |
| Net Operating Income after tax | 2,683 | 3,135 |
| Average Net Operating Assets | HAL | SLB |
| Average Operating Assets | 29,201 | 84,795 |
| Average Operating Liability | 7,066 | 19,799 |
| Average Net Operating Assets | 22,135 | 64,996 |
For HAL = 2,683/22,135 = 12.12%
For SLB = 3,135/64,996 = 4.82%
b) Disaggregate RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company:
Net Operating Profit Margin (NOPM) = Net Operating Profits after tax/ Total Revenue
For HAL = 2,683/$28,794 = 9.32%
For SLB = 3,135/$39,378 = 7.96%
Net Operating Asset Turnover (NOAT) = Total Revenue/ Average Net Operating Assets
For HAL = 28,794/22,135 = 1.30 times
For SLB = 39,378/64,996 = 0.61 times
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