P 8-3

Selected income statement and balance sheet data from Merck & Co. for Year 9 are reproduced
below:

a. Calculate return on common equity for Year 9 using year-end amounts and assuming no preferred
dividends.

b. Disaggregate Merck’s ROCE into operating (RNOA) and nonoperating components. Comment on
Merck’s use of leverage. (Assume all assets and current liabilities are operating and a 35% tax rate.)

a. ROCE = $1,650 / $3,860 = 42.7%

b. NOPAT = ($2,550 + $10) x (1-0.35) = $1,664
NOA = $7,250-$3,290 = $3,960
RNOA (using year-end NOA balance) = $1,664 / $3,960 = 42%
Pengaruh leverage keuangan, dengan demikian, hanya 0,7% karena NFO/NFE tidak
signifikan. Sebagian besar ROCE Merck di tahun ini berasal dari hasil operasi.

Pre-tax income to sales 0.36

Net income to sales 0.23

Sales/current assets 1.47

Sales / fixed assets 2.97

Sales / total assets 0.98

Total liabilities / equity 0.88

L-T liabilities / equity 0.03