Based on the data, how ha ShipCo performed over the past five years? What is its ROIC for years 2 to 5
(using averag invested capital)? What is its operating margin? What is its capital turnover? Is it creating
mor or less value over time? Assume an operating tax rate of 30 percent and cost of capital of percent.
Answer this using Microsoft Excel.
ANSWER:
Year
Net Income
1
57.8
2
50.1
3
64.2
4
71.1
5
60.8
Sales
Profit margin
530
10.91%
556.5
9.00%
601
10.68%
661.1
10.75%
674.3
9.02%
As it is observed that the profit margin is declining since the start of the analysis. This indicates a more
than proportional increase in expenses of the business. The ROIC as per workings below though increased
in years 3 and 4 declined in Year 5. The operating margin has also been steadily declining. The capital
turnover ratio shows a declining trend as per workings below. Thus, in spite of a steady rise in sales, the
company has been unable to increase value for its shareholders. This is clearly due to a deep fall in
operating margin of the business. ShipCo. needs to check its operating expenses.
ROIC
Year
Opening capital
1
2
392.5
3
425.5
4
471.7
5
525.1
Closing capital
425.5
471.7
525.1
576.6
Average capital
409
448.6
498.4
550.85
ROIC= Net income/
Average capital
12.25%
14.31%
14.27%
11.04%