Question

C UPDATE DuPont System of Analysis: Three compone nts (3) Use of Leverag Profitabi lity Efficien cy Total Net IncomeXSales ROA X Assets ROE Total Assets Sales Equity 1.57284 2014 6.49% x 2.81 - 18.23% 5481-28.67% 2015 6.59% X 2.63 17.31% X 1.70-29.46% 2016 6.45% x 2.534 16.34% x 1.84-30.08% 2017 5.82% x 2.529 14.73% x 2.02-29.79% Industry 6.75% X 12.83% 1.62-20.78% Weighted Industry Average 5.81% x 2.1921 12.74% x 5.66-72.09%

Using the chart above, which displays a dupont analysis for a company. Explain each factor in the analysis and what is going on with the company. Explain if this indicates a bad or good change in the company? Make sure you comment about each year.

Answer 1

Profitability- Profitability of the company has gone down in 2017 compared with previous year (not good sign). Also, profitability % is lesser than industry average (also not good sign). This indicates that company is either unable to sell it's product at higher cost or its costs are high compared with industry.

ROA- ROA has gone down in 2017 compared with previous year (not good sign), this is mainly due to low profitability ratio. But, its ROA compared with industry is high that shows that company overall has lower asset base through which it is able to generate profit compared with industry.

Leverage- Leverage of the company has increased in 2017 that indicates that company has borrowed new debt thereby increasing leverage ratio. It is higher than industry (not good sign).

ROE-Company is able to maintain ROE at 30% (which is good). Alos, it is higher than industry (also good sign).