10. An analysis of company performance using DuPont analysis Walking down the hall of your office building with a sheaf

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10 An Analysis Of Company Performance Using Dupont Analysis Walking Down The Hall Of Your Office Building With A Sheaf 1 (38.95 KiB) Viewed 56 times

10. 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, Madison, stepped into your office and asked the following. MADISON: 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? MADISON: 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. Xavier, 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 Xavier 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.
the total asset If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the turnover ratio, and the net profit margin And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratio operating profit margin company's effectiveness in using the company's assets, and Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. In the dropdown lists next to your values I'm going to select correct if your calculation is correct and incorrect if your calculation is incorrect.
the total asset If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the turnover ratio, and the And, according to my u equity multiplier DuPont equation and its calculation of ROE, the three ratios provide insights into the company's effectiveness in using the company's assets, and debt ratio Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. In the dropdown lists next to your values I'm going to select correct if your calculation is correct and incorrect if your calculation is incorrect.
, the total asset If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the turnover ratio, and 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 shareholder and dividend management use of debt versus equity financing and then we can talk about possible strategies that will improve the ratios. In the dropdown lists next to our values in yomg w SCICCT CONTCL T your calculation is correct and incorrect if your calculation is incorrect.
Balance Sheet Data Income Statement Data Cash Accounts payable $1,560,000 Sales $26,000,000 13,000,000 Accounts receivable Accruals Cost of goods sold $1,300,000 2,600,000 3,900,000 $7,800,000 520,000 2,080,000 Inventory Notes payable Gross profit $13,000,000 Current assets Current liabilities $4,160,000 Operating expenses 6,500,000 Long-term debt 6,760,000 EBIT $6,500,000 1,060,800 Total liabilities $10,920,000 Interest expense Common stock 1,170,000 EBT $5,439,200 1,903,720 Net fixed assets 7,800,000 Retained earnings 3,510,000 Taxes Net income $3,535,480 Total equity Total debt and equity $4,680,000 $15,600,000 Total assets $15,600,000
Canis Major Veterinary Supplies Inc. DuPont Analysis Correct/Incorrect Ratios Ratios Value Value Correct/Incorrect Profitability ratios Asset management ratio Gross profit margin (%) 50.00 Total asset turnover 1.67 20.92 Operating profit margin (%) Net profit margin (%) 22.66 Financial ratios Return on equity (%) 54.01 Equity multiplier 1.43 MADISON: OK, it looks like I've got a couple of incorrect values, so show me your calculations, and then we can talk strategies for improvement. YOU: I've just made rough calculations, so let me complete this table by inputting the components of each ratio and its value:
MADISON: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Xavier would have been very disappointed in me if I had showed him my original work. So, now let's switch topics and identify general strategies that could be used to positively affect Canis Major's ROE. YOU: OK, so given your knowledge of the component ratios used in the DuPont equation, which of the following strategies should improve the company's ROE? Check all that apply. Increase the efficiency of its assets so that it generates more sales with each dollar of asset investment and increases the company's total asset turnover. Increase the cost and amount of assets necessary to generate each dollar of sales because it will increase the company's total asset turnover. Reduce the company's operating expenses, its cost of goods sold, and/or the interest rate on its borrowed funds because this will increase the company's net profit margin. Increase the firm's bottom-line profitability for the same volume of sales, which will increase the company's net profit margin.