In this model, we're asked to adjust the United Technologies balance sheet and income statement for 2014 to show the effect of the sale. Those adjustments have been done, the balance sheet's been deconsolidated, and the income statement too. What we want to turn our attention to now is returns analysis. If we scroll down, what we want to ask ourself is, was united correct to get rid of Sikorsky and lose its returns and instead reinvest those proceeds in a shared buyback.

To help us do that, we're gonna come up with some PE ratios, which will then help us work out return on equity, which my PE ratio for 2014. If I take the sale price and divide that by Sikorsky's pro forma net income for 2014, that gives us a figure of 63.8. If I now take one, divide that by the 63.8, that gives me a 1.6% return or payout ratio. If we look up to the operating profit for 2014, it was quite low, Sikorsky had a bit of a bad year. If instead we look to 2013, this looks like a more on-trend figure. So let's do the same for 2013. I take the sale price again, divide it by the 2013 net income, and then I invert that to one divided by that gives me 4.3% return equity or payout ratio. Okay, so if we take 4.3% as our benchmark, we want to see if the company's done better through the share buyback. So let's look at how the company used that money. Well, the price per share right up at the top was 101.

The group EPS after the sale and the share buyback is just a little bit further up. It's up in our income statements and it's 7.11.

So if I take that price, divide it by earnings per share, I get a PE multiple, and if I then invert that to one divided by the 14.2, I get 7%.

So what does this mean? It means that Sikorsky was earning united a 4.3% return. What United have done, they've given up that 4.3% and instead have reinvested it in something, earning them 7% return.

In any merger or acquisition, you always want to use cheap finance, 4.3% to invest in a high return investment, and that's exactly what's been done here. Sell Sikorsky and it's low returns and said invest it. High return, return that cash to shareholders happy shareholders.