Phillip Morris reported the following information in its 2018 Form 10-K. $ millions Dec. 31, 2018 Dec. 31, 2017 Stockholders' (Deficit) Equity Common stock, no par value (2,109,316,331 shares issued in 2018 and 2017) $0 $0 Additional paid-in capital 1,939 1,972 Earnings reinvested in the business 31,014 29,859 Accumulated other comprehensive losses (10,111) (8,535) Total stockholders' equity before treasury stock 22,842 23,296 Less: cost of repurchased stock (554,736,610 and 556,098,569 shares in 2018 and 2017, respectively) 35,301 35,382 Total PMI stockholders' deficit (12,459) (12,086) Noncontrolling interests 1,720 1,856 Total stockholders' deficit $(10,739) $(10,230) Net earnings $8,286 Net earnings attributable to noncontrolling interests 375 Net earnings attributable to PMI $7,911
a. Compute ROE for 2018 using the equity numbers as reported. Note: Round the percentage to one decimal place (for example, enter 14.6% for 14.55555%).
Answer (51.7) % (wrong)
How do you interpret this ratio? Answer Ratio is not interpretable (correct)
b. Add back treasury shares to adjust for the company’s negative equity. Recompute ROE for 2018. Note: Round the percentage to one decimal place (for example, enter 14.6% for 14.55555%).
Answer 39.5 % (wrong)
Does the adjusted ratio better captures the company’s performance during 2018? Answer Yes (correct)
Please see if you can correct the wrong answers above. Thanks