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3. Financial Statement Analysis: Calculate ROE, ROA, ROI, ROIC. (15 points)
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Assume we have two companies that are exactly alike in all ways, except one has debt and equity, and the other just has equity (no debt). We will call the one without the debt unleveraged (U) and the one with the debt we will call leveraged (L). We will look at the income statement under three different conditions: Good, Expected and Bad.
To calculate the ROE, ROA, ROI, and ROIC for each firm, you must first complete the balance sheet and income statement.
First, let’s look at the balance sheet and income state of Firm U.
Firm U B/S
| Assets | Liabilities & Owner’s Equity | |
| Current Assets | $ 50 | Debt $ 0 |
| Fixed Assets | $ 50 | Equity $100 |
| Total Assets | $ | Total L & OE $ |
| Firm U I/S | Business Condition | ||
| Good | Expected | Bad | |
| Revenue | $150 | $100 | $75 |
| Oper Costs Fixed | 45 | ||
| Variable | 60 | 40 | 30 |
Total Oper Costs Operating Income (EBIT)
Interest (i = 10%) Earnings before taxes (EBT)
Taxes (t = 40%) Net Income (NI) $ $ $
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