Question

9. An analysis of company performance using DuPont analysis Walking down the hall of your office building with a sheaf of papers in her hand, your friend and colleague, Chloe, stepped into your office and asked the following. CHLOE: Do you have 10 or 15 minutes that you can spare? YOU: Sure, I've got a meeting in an hour, but I don't want to start something new and then be interrupted by the meeting, so how can I help? CHLOE: I've been reviewing the company's financial statements and looking for general ways to improve our performance, in general, and the company's return on equity, or ROE, in particular. Eric, my new team leader, suggested that I start by using a DuPont analysis, and I'd like to run my numbers and conclusions by you, to see if I've missed anything. Here are the balance sheet and income statement data that Eric gave me, and here are my notes with my calculations. Could you start by making sure that my numbers are correct? YOU: Give me a minute to look at these financial statements and to remember what I know about the DuPont analysis.

Answer 1

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W ' v ' a 1x 3 € ENG 04:14 29-03-2020 ... X fix - DS x DT DU DVDW DXDYDZ EA EBA THREE COMPONENT RATIOS the profit margin the total assets turnover ratio equity multiplier THE THREE RATIOS PROVIDE INSIGHTS INTO THE COMPANY'S use of debt versus equity financing effectiveness in using the company's assets control over its expenses DV1060 _ 1036 1037 1038 1039 1040 1041 1042 1043 1044 1045 1046 1047 1048 1049 1050 1051 1052 1053 1054 1055 1056 1057 1058 1059 1060 1 PROFITABILITY RATIOS gross profit margin operating profit margin net profit margin return on equity 40 11.64 12.61 35.17 correct incorrect incorrect incorrect ASSET MANAGEMENT RATIO total assets turnover 1.67 correct FINANCIAL RATIOS equity multiplier 1.67 incorrect ... 45 days cycle MCE ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS O1... |

' W v ' - ENG a 1x 3 04:15 29-03-2020 | 7 X DV1083 - DS X DI fi S DU DV DW DX DY DZ I EA EB . PROFITABILITY RATIOS gross profit margin operating profit margin net profit margin return on equity [4800000/12000000] [1800000/12000000] [907920/12000000] [907920/2880000] gross profit/sales EBIT/sales net income/sales net income/equity 40.00% 15.00% 7.57% 31.53% ASSET MANAGEMENT RATIO total assets turnover [12000000/7200000] sales/total assets 1.67 1059 1060 1061 1062 1063 1064 1065 1066 1067 1068 1069 1070 1071 1072 1073 1074 1075 1076 1077 1078 1079 1080 1081 1082 1083 1 FINANCIAL RATIOS equity multiplier [7200000/2880000] total assets/equity 2.50 NM + STATEMENTS TRUE FALSE FALSE TRUE HIGHER THE PROFITS. HIGHER THE NET PROFIT MARGIN, HIGHER THE ROE NO PROFIT MARGIN WILL COME DOWN AND INCREASE ASSET MAY OR MAY NOT INCREASE ROE DECREASE IN DEBT DOES NOT MEAN ASSET TURNOVER WILL ALSO REDUCE HIGHER THE DEBT FINANCING, HIGHER THE EQUITY MULTIPLIER, HIGHER THE ROE ... 45 days cycle MCE ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS O1... 7 -