Please calculate the following ratios: Market value added Market to book ratio R
ID: 2809099 • Letter: P
Question
Please calculate the following ratios:
Market value added
Market to book ratio
Return on Asset
The Home Depot, Inc. Balance Sheet
6,316,000
The Home Depot, Inc. Cash Flow All numbers in thousands Period Ending 1/29/17 1/31/16 Net Income 7,957,000 7,009,000 Operating Activities, Cash Flows Provided By or Used In Depreciation 1,973,000 1,863,000 Adjustments To Net Income 267,000 100,000 Changes In Accounts Receivables -138,000 -181,000 Changes In Liabilities 654,000 1,151,000 Changes In Inventories -769,000 -546,000 Changes In Other Operating Activities -161,000 -23,000 Total Cash Flow From Operating Activities 9,783,000 9,373,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures -1,621,000 -1,503,000 Investments - 144,000 Other Cash flows from Investing Activities 38,000 -1,623,000 Total Cash Flows From Investing Activities -1,583,000 -2,982,000 Financing Activities, Cash Flows Provided By or Used In Dividends Paid -3,404,000 -3,031,000 Sale Purchase of Stock -6,662,000 -6,772,000 Net Borrowings 2,274,000 4,012,000 Other Cash Flows from Financing Activities -78,000 4,000 Total Cash Flows From Financing Activities -7,870,000 -5,787,000 Effect Of Exchange Rate Changes -8,000 -111,000 Change In Cash and Cash Equivalents 330,000 604,000Explanation / Answer
Answer:
Market value added: It is the sum of all capital claims held against the company plus the market value of debt and equity. It is calculated as:
MVA = V - K
where, MVA is the market value added of the firm, V is s the market value of the firm, including the value of the firm's equity and debt (its enterprise value), and K is the total amount of capital invested in the firm.
Since, the question did not provide the market value of The Home Depot, Inc., we have used the latest market value of company (i.e. Market capatalization), which is $238416000 ( in thousands), whic is always at current time and so we cannot find 2016 MVA
V (Market value) = $238416000
K (Total invested capital) = Total stockholders equity + (Total liabalities - account payable)
K (Total invested capital) = 4,333,000 + ( 38,633,000 - 11,212,000) = $31754000
So, MVA (Market value added) is = $238416000 - $31754000 = $206,662,000
Market to book ratio:
= V (Market capatalization) / Net Book Value
Net Book Value = Total Assets – Total Liabilities
Net Book Value = 42,966,000 - 38,633,000 = $4,333,000
V (Market value) = $23841600
So Market value of book is:
= $23841600 / $4,333,000
= 5.50
Return on Asset (ROA):
ROA = Net Income / Total Assets
= 7,957,000 / 42,966,000
= 0.1851 or 18.51%