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Question - Income statements and balance sheets follow for Microsoft Corporation. Refer to these financial statements to answer the requirements.
MICROSOFT CORPORATION Income Statements For the years ended June 30,
(in millions)
2016
2015
Revenue
Product
$61,502
$75,956
Service
23,818
17,624
Total revenue
85,320
93,580
Cost of revenue
17,880
21,410
Service and other
14,900
11,628
Total cost of revenue
32,780
33,038
Gross margin
52,540
60,542
Research and development
11,988
12,046
Sales and marketing
14,697
15,713
General and administrative
4,563
4,611
Impairment, integration, and restructuring
1,110
10,011
Operating income
20,182
18,161
Other income (expense), net
(431)
346
Income before taxes
19,751
18,507
Provision for income taxes
2,953
6,314
Net income
$16,798
$ 12,193
MICROSOFT CORPORATION Balance Sheet As of June 30,
Current assets:
Cash and cash equivalents
$ 6,510
$ 5,595
Short-term investments
106,730
90,931
Accounts receivable, net
18,277
17,908
Inventories
2,251
2,902
Other current assets
5,892
5,461
Total current assets
139,660
122,797
Property and equipment, net
18,356
14,731
Equity and other investments
10,431
12,053
Goodwill
17,872
16,939
Intangible assets, net
3,733
4,835
Other long-term assets
3,642
3,117
Total assets
$193,694
$174,472
Current liabilities:
Accounts payable
$ 6,898
$ 6,591
Short-term debt
12,904
4,985
Current portion of long-term debt
0
2,499
Accrued compensation
5,264
5,096
Income taxes
580
606
Short-term unearned revenue
27,468
23,223
Other current liabilities
6,243
6,647
Total current liabilities
59,357
49,647
Long-term debt
40,783
27,808
Long-term unearned revenue
6,441
2,095
Deferred income taxes
1,476
1,295
Other long-term liabilities
13,640
13,544
Total liabilities
121,697
94,389
Stockholders' equity:
Common stock and paid-in capital
68,178
68,465
Retained earnings
2,282
9,096
Accumulated other comprehensive income
1,537
2,522
Total stockholders' equity
71,997
80,083
Total liabilities and stockholders' equity
$ 174,472
Required:
Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for both years.
Compute net operating assets (NOA) for 2016 and 2015. Assume Equity and other investments are operating assets.
Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $26,720 million in 2014.
Compute return on equity (ROE) for 2016 and 2015. (Stockholders' equity in 2014 is $89,784 million.)
What is non-operating return component of ROE for 2016 and 2015?
Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?
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