Question

Question 2: DuPont method In year 2016, Apple Inc. had profit margin of 27.8% (i.e., it generated 27.8 cents of profit per dollar of sales) and asset turnover of 0.670 (i.e., it generated 67.0 cents of annual sales per dollar of assets). a) The profit margin indicates that Apple has high pricing power -- it can charge high prices relative to costs C high production efficiency -- it has very low costs o low pricing power -- it cannot charge high prices relative to costs The asset turnover indicates that Apple is c extremely efficient in generating assets per dollar of sales C extremely efficient in generating sales per dollar of assets c relatively inefficient in generating sales per dollar of assets b) Compute Apple's return on investment (ROI) ROI = % (if your answer is 15.3%, enter 15.3 without the percent sign; round your answer to one digit after the decimal point, i.e., enter 15.3 not 15 or 15.332) c) Huawei Technologies is a major manufacturer of low-cost Android phones. Think about Apple vs Huawei. Which company likely has higher profit margin? C Apple Huawei Which company likely has higher asset turnover? C Apple Huawei

Answer 1

a)High pricing power – It can charge high prices

since profit margin is high

relatively inefficient in generating sales per dollar of assets

since ratio is less than 1

ROI = Margin*Turnover

= 27.8%*0.670

= 18.626%

Huawei since cost is lower

Huawei