In this workout, we are going to calculate return on opening equity and return on opening invested capital for York PLC. We're provided with current year income statement extracts and prior year balance sheet extracts for the company. Let's start with return on equity. Now, York PLC has generated net income of 38.4 during the year, and we can see from the balance sheet extracts that at the start of the year it had equity of 385. So let's calculate return on equity. We take the net income figure and divide it by the equity figure. So that means for every Dollar invested by your PLC shareholders, they're generating a return for those shareholders of 10 Cents.

Now let's calculate return on invested capital. Now that's a little bit more complicated because for this we need to calculate both NOPAT and invested capital. Let's start with the NOPAT. For that we need EBIT, and then we multiply that by one minus the effective tax rate.

That's our NOPAT calculation. We then need to divide that by invested capital. Now invested capital is going to include equity and also debt, but then we also need to net off the cash against that debt, and that's our invested capital calculation. And that gives us return on invested capital of 9.4%. So that means for every Dollar invested by debt and equity investors in York PLC's operations, they're generating a return for those investors of 9.40 Cents.