Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

its all one question. please answer all parts :) please answer your best and ill check with drop down options 9. An analysis of company

its all one question. please answer all parts :)
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
please answer your best and ill check with drop down options
9. An analysis of company performance using DuPont analysis A sheaf of papers in his hand, your friend and colleague, Akira, steps into your office and asked the following. AKIRA: 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? AKIRA: I've been reviewing the company's financial statements and looking for ways to improve our performance, in general, and the company's return on equity, or ROE, in particular. Emma, 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 whether I've missed anything. Here are the balance sheet and income statement data that Emma 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. Balance Sheet Data Income Statement Data Cash $1,300,000 Accounts payable $1,560,000. Sales Accounts receivable 2,600,000 Accruals 520,000 Cost of goods sold Inventory 3,900,000 Notes payable 2,080,000 Gross profit Current assets 7,800,000 Current liabilities 4,160,000 Operating expenses Long-term debt 4,420,000 EBIT Total habilities 8,580,000 Interest expense Common stock 1,755,000 EBT Net fixed assets 7,800,000 Retained earnings 5,265,000 Taxes Total equity 7,020,000 Net income Total assets $15,600,000 Total debt and equity $15,600,000 If I remember correctly, the DuPont equation breaks down our ROE into three component ratios: the asset turnover ratio, and the equity multiplier $26,000,000 15,600,000 10,400,000 6,500,000 3,900,000 780,000 3,120,000 780,000 $2,340,000 net profit margin the total And, according to my understanding of the DuPont equation and its calculation of ROE, the three ratios provide insights into the effectiveness in using the company's assets, company's use of debt versus equity financing and control over its expenses Now, let's see your notes with your ratios, and then we can talk about possible strategies that will improve the ratios. I'm going to check the box to the side of your calculated value if your calculation is correct and leave it unchecked if your calculation is incorrect. Canis Major Veterinary Supplies Inc. DuPont Analysis Ratios Value Correct/Incorrect Ratios Value Correct/Incorrect Profitability ratios Gross profit margin (%) Operating profit margin (%) Asset management ratio Total assets turnover 1.67 Correct 40.00 12.00 Correct Incorrect Net profit margin (%) 15.00 Incorrect Financial ratios Return on equity (%) 45.59 Incorrect Equity multiplier 1.82 Incorrect AKIRA: 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: Do not round intermediate calculations and round your final answers up to two decimals. Canis Major Veterinary Supplies Inc. DuPont Analysis Calculation Numerator Ratios Value Profitability ratios Gross profit margin (%) Operating profit margin (%) / Net profit margin (%) Return on equity (%) Asset management ratio Total assets turnover Financial ratios Equity multiplier AKIRA: I see what I did wrong in my computations. Thanks for reviewing these calculations with me. You saved me from a lot of embarrassment! Emma would have been very disappointed in me if I had showed her my original work. So, now let's switch topics and identify general strategies that could be used to positively affect Canis Major's ROE. Denominator Check all that apply. Use more equity financing in its capital structure, which will increase the equity multiplier. Increase the interest rate on its notes payable or long-term debt obligations because it will reduce the company's net profit margin. 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. Use more debt financing in its capital structure and increase the equity multiplier. AKIRA: I think I understand now. Thanks for taking the time to go over this with me, and let me know when I can return the favor

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Behavioral Finance And Investor Types

Authors: Michael M. Pompian

1st Edition

1118011503, 978-1118011508

More Books

Students also viewed these Finance questions