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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Dupont Analysis

Refer to Steele’s financial statements in Exercise 12-76 and the information below.

Chapter 12, Problem 83E, Dupont Analysis Refer to Steeles financial statements in Exercise 12-76 and the information below. , example  1

Chapter 12, Problem 83E, Dupont Analysis Refer to Steeles financial statements in Exercise 12-76 and the information below. , example  2

Required:

1. Perform a Dupont analysis (in percentage terms, rounded to two decimal places) for 2018 and 2019.

2. CONCEPTUAL CONNECTION Explain what you learn about Steele’s trends from 2018 to 2019 by comparing its performance to the industry averages industry averages.

To determine

(a)

Introduction:

Dupont analysis helps in recognizing that the return on equity of a company can be segregated into three important parts and those are net profit margin, asset turnover and leverage.

To perform:

Dupont analysis of Steele for 2018 and 2019.

Explanation

Dupont analysis for 2019:

Average total asset =$3,846,450+$4,135,1052

= $3,990,777.5

Average equity =$2,267,617+$2,441,2932

= $2,354,455

ROE=(Net incomeSales)×(SalesAverage Total Assets)×(Average total assetsAverage equity)

= ($391,179$7,245,088)×($7,245,088$3,990,777.5)×($3,990,777.5$2,354,455)

= 5.39% × 1.81 × 1.69

= 16.48%

Dupont analysis for 2018:

Average Total asset=$3,485,233+$3,846,4502

= $3,665,841

To determine

(b)

Introduction:

Dupont analysis helps in recognizing that the return on equity of a company can be segregated into three important parts and those are net profit margin, asset turnover and leverage.

To compare:

Steele’s trends of 2018 and 2019 with industry average.

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