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Dupont Case
By tweaklefairy, Feb 2009 | 9 Pages (2,231 Words) | 1641 Views |
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Executive Summary
DuPont has been known for its low reliance on borrowings. In the 1970’s, the company had to assume a substantial portion of debt of Conoco, a newly acquired company. In 1983, the managers have to decide about the future optimal target debt ratio. Should the company continue to keep about 40% of its assets financed via debt or should it strive to lower its borrowings to 25%?
We defined several criteria to determine our choice – return, risks and other quantitative
…show more content…
Prior to 1980s, DuPont has been well known for its policy of extreme financial conservatism. The company’s low debt ratio was feasible in part because of its success in its product market. In fact, this made them one of the few companies with an AAA rating that allowed it to maximize financial flexibility. We can divide the previous period by the time with conservative debt policy
(1965-1979) and that with a more liberal debt policy (1980).
Year Sales* EBIT* Capital Expenditure*
1965 $ 2,999 $ 767 $ 327
1966 $ 3,159 $ 727 $ 531
1967 $ 3,079 $ 574 $ 454
1968 $ 3,455 $ 764 $ 332
1969 $ 3,632 $ 709 $ 391
1970 $ 3,618 $ 590 $ 471
1971 $ 3,848 $ 644 $ 454
1972 $ 4,366 $ 768 $ 522
1973 $ 5,964 $ 1,100 $ 727
1974 $ 6,910 $ 733 $ 1,008
1975 $ 7,222 $ 574 $ 1,036
1976 $ 8,361 $ 961 $ 876
1977 $ 9,435 $ 1,141 $ 704
1978 $ 10,584 $ 1,470 $ 714
1979 $ 12,572 $ 1,646 $ 864
Growth Rate 11.15% 9.03% 9.90%
* In thousands dollars ($ ‘000)

From above, we see that sales grew at an average of 11.15% and EBIT at 9.03%. Coinciding this, is an average capital expenditure of 9.90%. Let us now look at the second period.

Year Sales* EBIT* Capital Expenditure*
1980 $ 13,652 $ 1,209 $ 1,297
1981 $ 22,810 $ 2,631 $ 2,389
1982 $ 33,331 $ 3,545 $ 3,195
Growth Rate 56.60% 76.18% 58.97%

We can see a soaring increase on the growth of sales and EBIT for this period,

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