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Below are some summary numbers for a firm for fiscal years 2020 and 2021 (in...

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Finance

Below are some summary numbers for a firm for fiscal years 2020 and 2021 (in millions of dollars).

2020

2021

Sales

11,500

13,500

Operating income (after tax)

900

800

Net financial expense (after tax)

60

100

Comprehensive income

840

700

Net operating assets

5,100

5,200

Common equity

3,636

2,350

Required:

  1. Calculate return on common equity (ROCE), return on net operating assets (RNOA), net financial obligations (NFO), and net borrowing cost (NBC) for 2020 and 2021 [Note: use year-end value for the calculation].

  1. How much of the change in ROCE over the two years is due to:
    1. Change in financial leverage
    2. Change in spread
    3. Change in profit margin
    4. Change in asset turnover

  1. On the basis of your preceding analysis, critically evaluate the factors affecting the profitability of the company. (5 marks)

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