J key ratio and acronym definitions ratio definition

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J Key Ratio and Acronym Definitions Ratio Definition ROE: Return on equity . NOPAT: Net operating profit after tax . Net income'/Average stockholders' equity' Operating revenues less operating expenses such as cost of sales, selling, general and administrative expense, and taxes; it excludes nonoperating revenues and expenses such as interest revenue, dividend revenue, interest expense, gains and losses on investments, disoontinued operations, and income attributed to noncontrolling interest. Operating assets less operating liabilities; it excludes nonoperating items such as investments in marketable securities and interest-bearing debt. NOPAT/Average NOA NOPAT - Net income'; NNE consists of nonoperating expenses and revenues, net of tax, as well as any noncontrolling interest reported on the income statement. (Noncontrolling interest is excluded from the tax shield estimation.) NOA: Net operating assets . RNOA: Return on net operating assets . NNE: Net nonoperating expense . • Amount attributable to the parent company's shareholders.
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OA DISAGGREGATION INTO MARGIN AND TURNOVER Module 3 I Profitability Analysis and Interpretation 3-12 "0 ggregating RNOA into its two components, profit margin and asset turnover, yields further ights into a company's performance. This disaggregation follows. RNOA = NOPAT = NOPAT x Sales Average NOA Sales Average NOA t t Net operating asset turnover (NOAD Net operating profit margin (NOPM) t Operating Profit Margin - operating profit margin (NOPM) reveals how much operating profit the company earns each sales dollar. All things equal, a higher NOPM is preferable. NOPM is affected by the el of gross profit the company earns on its products (revenue minus cost of goods sold), which • nds on product prices and manufacturing or purchase costs. NOPM is also affected by the Iof operating expenses the company requires to support its products or services. This includes ead costs such as wages, marketing, occupancy, and research and development. Finally, PYr is affected by the level of competition (which affects product pricing) and the company's ~gness and ability to control costs. Target's net operating profit margin is computed as follows ($ millions). NOPAT $3,397 NOPM = = = 5.04% Revenues $67,390 -0 result means that for each dollar of sales at Target, the company earns roughly S.04¢ profit all operating expenses and taxes. As a reference, the median NOPM for publicly traded panies during the past decade is about 6¢. BUSINESS INSIGHT Target's NOPM 5.5% / I_NOPM I / f--- V - f-- V " ~", .. ""."" 1 1/- V V '-----, e following chart shows that -arget's net operating profit mar- . has increased from 4.25% o 5.04% of revenues. This is a :lice increase for a retailer in this " hly competitive environment. 5.0% 4.5% 4.0% 3.5% 2009 2010 2011 t Operating Asset Turnover operating asset turnover (NOAT) measures the productivity of the company's net operating as. This metric reveals the level of sales the company realizes from each dollar invested in operating assets. All things equal, a higher NOAT is preferable. Target's net operating asset ver ratio follows ($ millions).
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