Question

Halliburton and Schlumberger compete in the oil field services sector. Refer to the following 2018 financial data for the two companies to answer the requirements.
$ millions HAL SLB
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,995 $32,815
Cost of sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,009 28,478
Average accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,135 7,983
Average inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,712 4,028
Average accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,786 10,130
Marginal tax rate 22% 19%
Return on equity 18.56% 5.86%
a. Compute return on net operating assets (RNOA) for each company.
b. Disaggregate RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for each company.
Do not round until your final answer. Round answers to two decimal places (percentage example: 0.12345 = 12.35%).
HAL SLB
RNOA
NOPM
NOAT

Answer 1

Answer:

a. Return of Net Operating Asset for each company

                                                                       Amount$

Particulars                                                  HAL       SLB

Net Operating Profits after tax

Net Income (after tax)                                      1,657   2,177

Marginal Tax Rate                                             22%        19%

Net Income (before tax)                                   2,124   2,688

(Net Income (after tax)*100/(100-Tax Rate)    

Add : Pre tax net non operating Expense      653          426

Net Operating Income before tax                  2,777        3,114

Marginal Tax Rate                                            22%         19%

Less Tax Expense (Net Operating Income)   -611          -592

(before tax*Marginal Tax Rate)

Net Operating Income after tax                    $2,166     $2,522

Average Net Operating Assets           HAL       SLB

Average Operating Assets                 23,361    67,836

Average Operating Liability               5,888     16,499

Average Net Operating Assets          17,473     51,337

RNOA = Net Operating Income after tax / Average Net Operating Assets (A/B)

HAL = 2,166 / 17,472 = 12.40%

SLB = 2,522 / 51,337 = 4.91%

b. Net Operating Profit Margin = (Net Operating Profits after tax/ Total Revenue *100)  

Particulars                                                       HAL      SLB

Net Operating Income after tax (Refer A)  2,166    2,522

Total Revenue                                               23,995   32,815

Net Operating Profit Margin                        9.03% 7.69%

(Net Operating Profits after tax/ Total Revenue *100)

 

Net Operating Asset Turnover = (Total Revenue/ Average Net Operating Assets)

Particulars                                                     HAL           SLB

Total Revenue                                               23,995      32,815

Average Net Operating Assets (Refer B)    17,473         51,337

Net Operting Asset Turnover                     1.37times    0.64times

(Total Revenue/ Average Net Operating Assets)