Construct the DuPont system of analysis using the following financial data for Key Wahl Industries and determine which areas of the firm need further analysis.

Key Financial Data

Key Wahl Industries

Sales$4,500,000

Net profits after taxes337,500

Total assets6,750,000

Total liabilities3,375,000

Industry Averages

Total asset turnover0.71

Debt ratio33.00%

Financial leverage multiplier1.50

Return on total assets6.75%

Return on equity10.00%

Net profit margin9.50%

Ratios for Key Wahl Industries

Analysis:Based on return on equity, Key Wahl Industries performs equally to industry averages which it is good. However, when analyzing other financial data further into DuPont systems key main components i.e. a profit-on-sale, efficiency-of-asset use, and a use-of-leverage component, there are areas of improvement need to be highlighted. Key Wahl Industries has lower net profit margin (7.5% vs 9.5%) and total asset turnover lower (0.67 vs 0.71) than industry average. Nonetheless, through excessive use of leverage i.e. a debt ratio of 50% compare to 33% of industry average, the firm able make up the low profit margin. Key Wahl Industries able to reduce its financial risk resulting in the same return on equity by increasing the net profit margin and reducing debt