Question

9. An analysis of company performance using DuPont analysis Aa Aa E Walking down the hall of your office building with a sheaf of papers in his hand, your friend and colleague, Jason, stepped into your office and asked the following. Jason: 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? 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. Anja, 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 Anja 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. Cash Accounts receivable Inventory Current assets Balance Sheet Data $1,200,000 Accounts payable 2,400,000 Accruals 3,600,000 Notes payable 7,200,000 Current liabilities Long-term debt Total liabilities Common stock 7,200,000 Retained earnings Total equity $14,400,000 Total debt and equity $1,440,000 480,000 1,920,000 3,840,000 5,520,000 9,360,000 1,260,000 3,780,000 5,040,000 $14,400,000 Income Statement Data Sales $24,000,000 Cost of goods sold 12,000,000 Gross profit 12,000,000 Operating expenses 6,000,000 EBIT 6,000,000 Interest expense 892,800 EBT 5,107,200 Taxes 1,787,520 Net income $3,319,680 Net fixed assets Total assets If I remember correctly, the DuPont equation breaks down our return on equity (ROE) into three component ratios: the ratio, and the , the And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratios provide insights into the company's , effectiveness in using the company's assets, and

Answer 1

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e ? v . ** 01:40 ENG 05-03-2020 22 DZ875 fi X DI DS DU DV DW DX DY DZ EA EB A 871 872 873 874 875 THREE COMPONENT RATIOS the profit margin the total assets turnover ratio equity multiplier 876 877 878 879 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 880 881 882 883 884 885 886 887 PROFITABILITY RATIOS gross profit margin operating profit margin net profit margin return on equity 50 21.28 23.05 59.28 correct incorrect incorrect incorrect ASSET MANAGEMENT RATIO total assets turnover 1.67 correct 889 890 891 892 893 894 FINANCIAL RATIOS equity multiplier 1.54 incorrect 895 FIFO CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP OL FL ratios DETROIT float B-S profit loss SALES BUDGET du...

v 1 01:41 ENG 05-03-207022 fx DV914 DS 895 896 - X I DT DU DV DW DX DY DZ EA EB a 897 898 899 PROFITABILITY RATIOS gross profit margin operating profit margin net profit margin return on equity 900 50.00% (12000000/24000000] 25.00% [6000000/24000000] 13.83% (3319680/24000000] 65.87% (3319680/5040000) gross profit/sales EBIT/sales net income/sales net income/equity 901 ASSET MANAGEMENT RATIO total assets turnover 1.67 (24000000/14400000] sales/total assets 906 FINANCIAL RATIOS equity multiplier 2.86 [14400000/5040000] total assets/equity 907 908 909 910 911 912 913 statement is true if efficiency of assets is improved, ROE can be increased 914 915 916 917 918 919 FIFO CASH BUDGET budget 45 days cycle ROE, BV MV ratio VARIANCE BEP OL FL ratios DETROIT float B-S profit loss SALES BUDGET du...