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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between the turnover ratios, profit margins, and DuPont equations for a grocery chain and a steel company?

Summary Introduction

To explain: Difference between the turnover ratio, profit margins, and DuPont equations for a grocery chain and a steel company.

Introduction:

Financial Ratio Analysis: Financial ratio analysis is one of the tools of financial analysis of a firm. It represents the relationship between two or more items of the financial statement.

Explanation
  • Grocery chain have to maintain a wide variety of products, therefore, large inventories are maintained by the grocery chain, which leads to high turnover ratio while profit margin is less.
  • Steel company is a form of heavy company which has high profit margin and low turnover
  • Under DuPont analysis return on equity can be calculated as a product of profit margin, total assets turnover and equity multiplier. The DuPont equation is as follows,

Return on Equity=(Profit

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