21-1

DuPont Analysis ofThree Companies

Chapter 21Illustrated Solution: Problem 21-33

21-2

Problem Introduction

Company A Company B Company C

Net sales $ 60,000 $ 28,000 $ 21,000

Net income 9,600 1,850 360

Total assets 155,400 21,500 3,200

Total equity 61,000 11,300 1,690

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Problem Information

Ratios

Return on sales

Asset turnover

Assets-to-equity ratio

Return on assets

Return on equity

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Ratio Computations

Company A Company B Company C

$9,600$60,000

$1,850$28,000

$360$21,000= 16.00% = 6.61% = 1.71%

Return on Sales = Net income / Net sales

21-5

Ratio Computations

Company A Company B Company C

$60,000$155,400

$28,000 $21,500

$21,000 $3,200= 0.39 = 1.30 = 6.56

Asset turnover = Net sales / Total assets

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Ratio Computations

Company A Company B Company C

$155,400 $61,000

$21,500 $11,300

$3,200 $1,690= 2.55 = 1.90 = 1.89

Asset-to-equity ratio = Total assets/Total equity

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Ratio Computations

Company A Company B Company C

$9,600$155,400

$1,850$21,500

$360$3,200= 6.18% = 8.60% = 11.25%

Return on assets = Net income / Total assets, or

= Return on sales x Asset turnover

21-8

Ratio Computations

Company A Company B Company C

$9,600$61,000

$1,850$11,300

$360$1,690=15.74% = 16.37% = 21.30%

Return on equity = Net income / Total equity

21-9

Ratio Summary Table

Ratio Company A Company B Company CReturn on sales 16.00% 6.61% 1.71%

Asset turnover 0.39 1.30 6.56

Assets-to-equity ratio 2.55 1.90 1.89

Return on assets 6.18% 8.60% 11.25%

Return on equity 15.74% 16.37% 21.30%

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Ratio Analysis

Ratio Company A Company B Company CReturn on sales 16.00% 6.61% 1.71%

Asset turnover 0.39 1.30 6.56

Assets-to-equity ratio 2.55 1.90 1.89

Return on assets 6.18% 8.60% 11.25%

Return on equity 15.74% 16.37% 21.30%

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.

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End of Problem