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    Financial leverage Heineken report -tutorial 5 - ROE = profit / equity -ROD = interest expenses / debt -ROA = (profit + interest expenses) / total assets. Financial leverage: a simple example Assets EUR 100.000 EUR 100.000 Revenues - / - operational costs: EUR 11.000 8% of EUR 40.000 = EUR 3.200 is for the creditors. Available to shareholders: EUR 7.800 Liabilty: it costs EUR 8 of interest and

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    Assignments to the Heineken Annual Accoounts[1][2]

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    Financial leverage Heineken report -tutorial 5 - ROE = profit / equity -ROD = interest expenses / debt -ROA = (profit + interest expenses) / total assets. Financial leverage: a simple example Assets EUR 100.000 EUR 100.000 Revenues - / - operational costs: EUR 11.000 8% of EUR 40.000 = EUR 3.200 is for the creditors. Available to shareholders: EUR 7.800 Liabilty: it costs EUR 8 of interest and

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    24 views14 pages

    Assignments To The Heineken Annual Accoounts

    Uploaded by

    sentinelxxxx
    Financial leverage Heineken report -tutorial 5 - ROE = profit / equity -ROD = interest expenses / debt -ROA = (profit + interest expenses) / total assets. Financial leverage: a simple example Assets EUR 100.000 EUR 100.000 Revenues - / - operational costs: EUR 11.000 8% of EUR 40.000 = EUR 3.200 is for the creditors. Available to shareholders: EUR 7.800 Liabilty: it costs EUR 8 of interest and

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    Financial leverage Heineken report tutorial 5

    -ROE = profit / equity


    -ROD = interest expenses / debt -ROA = (profit + interest expenses) / total assets

    ROA x TA ROD x D ROA (E + D) -/- ROD x D ROA x E + ROA x D -/- ROD x D ROA x E + (ROA -/- ROD) x D Dividing by equity:
    ROE = ROA + (ROA -/- ROD) x (D/E)
    Week 1 1

    Financial leverage: a simple example


    Assets 100.000
    100.000

    Equity 60.000 Liabilties (8%) 40.000 100.000

    Revenues -/- operational costs : 11.000 8% of 40.000 = 3.200 is for the creditors So available to shareholders : 7.800

    Simple example continued


    ROA = (11.000 / 100.000) x 100% = 11%
    ROE = (7.800 / 60.000) x 100% = 13%

    Liabilty : it costs 8 of interest and delivers 11 per 100, difference of 3 is a result on liabilties which benefits shareholders. If completely financed with equity: ROE = 11% ipv 13%

    Financing with debt increases ROE if ROA>ROD

    Some remarks about financial leverage


    Influence of taxes Other advantage of debt: erosion of debt Disadvantage of debt: solvency detoriates Financial vs operating leverage

    Week 1 4

    Exercise Financial leverage Heineken


    Calculate ROA, ROE and ROD for Heineken on 31 december 2008 (after taxes) for the group. Use end-of-year numbers for balance sheet items. You are allowed to make assumptions.
    Check your calculations by using the formula ROE = ROA + (ROA ROD) x (D/E)

    Week 1 5

    ROE = 347 / 4.752 = 0,0730218852 ROD = 469 / 15.835 = 0,02961793495 ROA = 816 / 20.587 = 0.03963666391

    (7,3%) (2,96%) (3,96%)

    ROE = ROA + (ROA ROD) x (D /E)

    Intermediate Financial Accounting I

    Annual report Heineken

    2009

    Content

    Consolidated balance sheet Consolidated income statement Consolidated cash flow statement Consolidated statement of changes in equity

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