AFM101 Chapter Notes - Chapter 13: Dupont Analysis, Cash Flow, Asset

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM101
• Professor: Donna Psutka

Document Summary

Users of financial statements are interested in three types of info: Information about the present condition of a business. Information about the future performance of the business. Largest group of people who use info are current and potential investors. They rely on advice of professional analysts, whose role is to interpret financial information and advise clients to buy, hold, or sell. Investor should evaluate the future net earnings and growth potential of the business on the basis of three factors: economy-wide factors. Analyzing financial statements isn"t crunching numbers, must know what you are looking for. Return on equity = net earnings / average shareholders" equity. Dupont analysis breaks roe into three component parts. Roe = net profit margin * total asset turnover ratio * financial leverage ratio. Businesses can earn a high roe by following two fundamental strategies: product differentiation, cost advantage.