Historical Income Statement for MKH, Inc.
|
Item |
2019 $ millions |
2020 $ millions |
|
Revenue Operating expenses Depreciation |
810 (600) (80) |
880 (640) (90) |
|
Operating Profit
Interest income Interest expense Loss on equity investment |
130
5 (10) 0 |
150
5 (10) (25) |
|
Earnings before taxes
Taxes |
125
(50) |
120
(48) |
|
Net Income |
75 |
72 |
Historical Balance Sheet for MKH, Inc.
|
Item |
2019 $ millions |
2020 $ millions |
|
Cash Marketable Securities Inventory |
5 155 250 |
10 107 300 |
|
Current Assets
Property, plant, and equipment Equity investments at cost |
410
400 100 |
417
500 75 |
|
|
|
|
|
Total Assets |
910 |
992 |
|
|
|
|
|
Accounts payable Current portion of long-term debt
|
200 20 |
210 20 |
|
Current liabilities
Long-term debt Equity Retained earnings |
220
200 100 390 |
230
200 100 462 |
|
Total liabilities and shareholder equity |
910 |
992 |
Required:
Assuming the marginal tax rate equals 40 percent, compute MKH’s EBITDA, NOPLAT, Invested Capital, and ROIC (for simplicity, use year-end invested capital). Is ROIC increasing or decreasing?
Decompose MKM’s ROIC and explain how each component of the decomposition leads to an integrated perspective of performance. Address whether operating margins or capital turnover is driving the drop in ROIC.
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