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DuPont Analysis of Three Companies

Chapter 21. Illustrated Solution: Problem 21-33. DuPont Analysis of Three Companies. Problem Introduction. Problem Information. Ratios Return on sales Asset turnover Assets-to-equity ratio Return on assets Return on equity. Ratio Computations. Return on Sales = Net income / Net sales.

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DuPont Analysis of Three Companies

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  1. Chapter 21 Illustrated Solution: Problem 21-33 DuPont Analysis of Three Companies

  2. Problem Introduction

  3. Problem Information Ratios Return on sales Asset turnover Assets-to-equity ratio Return on assets Return on equity

  4. Ratio Computations Return on Sales = Net income / Net sales = 16.00% = 6.61% = 1.71%

  5. Ratio Computations Asset turnover = Net sales / Total assets = 0.39 = 1.30 = 6.56

  6. Ratio Computations Asset-to-equity ratio = Total assets/Total equity = 2.55 = 1.90 = 1.89

  7. Ratio Computations Return on assets = Net income / Total assets, or = Return on sales x Asset turnover = 6.18% = 8.60% = 11.25%

  8. Ratio Computations Return on equity = Net income / Total equity =15.74% = 16.37% = 21.30%

  9. Ratio Summary Table

  10. Ratio Analysis • The large utility is Company A. (The large investment in assets, the low asset turnover, and high return on sales suggest Company A is the utility.) • The low return on sales and a high asset turnover suggest Company C is the large grocery story. • Therefore, the large department store is Company B.

  11. End of Problem

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