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DuPont Analysis ofThree Companies
Chapter 21Illustrated Solution: Problem 21-33
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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
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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
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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
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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