Business Administration - Accounting & Financial Planning FIN401 Lecture Notes - Lecture 3: Suncor Energy, Profit Margin, Financial Statement

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greenmuskrat329

20 Jan 2018

School

Seneca College

Department

Business Administration - Accounting & Financial Planning

Course

Business Administration - Accounting & Financial Planning FIN401

Professor

Larry Hurst

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Document Summary

Problem 3: using the dupont method evaluate the effects of the following, a. lollar corp has a profit margin of 5 percent and its return on assets ( relationships for the lollar corp. Problem 3: using the dupont method evaluate the effects of the following, c) what would happen to the roe if the debt-to-total assets ratio relationships for the lollar corp. decreased to 40% Applying dupont analysis on suncor and imperial oil: the dupont system provides a good starting point for any financial. Dupont system ( summary) analysis (profitability, asset utilization, leverage). It shows that financial strength comes from many sources. Firms tend to face a trade-off between turnover and margin. It reinforces the concept that good financial analysis requires. Dupont system ( summary: improving our operating efficiency or our asset use efficiency will improve our return on equity.

Related Questions

DuPont system of analysis. Use the following ratio information for Johnso International and the industry averages for Johnson's line of business to:

a. Construct the DuPont system of analysis for both Johnson and the industry.

b. Evaluate Johnson (and the industry) over the 3- year period.

c. Indicate in which areas Johnson requires further analysis. Why?

Johnson 2013 2014 2015

Financial Leverage Multiplier 1.75 1.75 1.85

Net Profit Margin 0.059 0.058 0.049

Total Asset turnover 2.11 2.18 2.34

Industry Averages

Financial Leverage Multiplier 1.67 1.69 1.64

Net Profit Margin 0.054 0.047 0.041

Total Asset turnover 2.05 2.13 2.15

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THIS ASSIGNMENT IS BASED ON FORM 10-K WALGREENS BOOTS ALLIANCE,INC. FOR 2017.

https://www.sec.gov/Archives/edgar/data/1618921/000161892117000069/wba-2017831x10k.htm#sD544AA1057C23391F01B25BC6265E816

Compute Ratios See specific details below.

Based on formulas given, compute the following ratios in Excelfor two years.

1. Current ratio: current assets/current liabilities

2. Debt ratio: total debt/total assets

3. Gross profit margin

4. Times interest earned: (Earnings before Interest &Taxes)/Interest Expense

5. Accounts receivable (AR) turnover: Net Credit Sales/AverageAR Note: Av

6. Inventory turnover: Sales/Average Inventory Note: Averageinventory = (

7. Return on Sales: Net Income (before interest &taxes)/Sales

8. Asset Turnover: Sales/average total assets

9. Return on Assets: net profit/average total assets

B. Prepare a DuPont Analysis of ROE for two years, includingcomputations of

Return on Sales

Asset Turnover

Return on Assets

Financial Leverage

Return on Equity

C. Briefly evaluate the ratio trends. Indicate on your worksheetwhether each ratio is:

stronger / weaker

quicker /slower

more / less liquid

more / less risk

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Tying the Ratios Together

The DuPont equation shows the relationships among asset management, debt management, and

-Select-liquiditymarketprofitabilityCorrect 1 of Item 1 ratios. Management can use the DuPont equation to analyze ways of improving the firm's performance. Its equation is:

Ratio analysis is important to understand and interpret financial statements; however, sound financial analysis involves more than just calculating and interpreting numbers. -Select-QuantitativeQualitativeForeignCorrect 2 of Item 1 factors also need to be considered.

Quantitative Problem: Rosnan Industries' 2014 and 2013 balance sheets and income statements are shown below.

Balance Sheets:
	2014	2013
Cash and equivalents	$60	$45
Accounts receivable	275	300
Inventories	375	350
Total current assets	$710	$695
Net plant and equipment	2,000	1,490
Total assets	$2,710	$2,185

Accounts payable	$150	$85
Accruals	75	50
Notes payable	110	135
Total current liabilities	$335	$270
Long-term debt	450	290
Common stock	1,225	1,225
Retained earnings	700	400
Total liabilities and equity	$2,710	$2,185

Income Statements:
	2014	2013
Sales	$2,000	$1,500
Operating costs excluding depreciation	1,250	1,000
EBITDA	$750	$500
Depreciation and amortization	100	75
EBIT	$650	$425
Interest	62	45
EBT	$588	$380
Taxes (40%)	235	152
Net income	$353	$228

Dividends paid	$53	$48
Addition to retained earnings	$300	$180

Shares outstanding	100	100
Price	$25.00	$22.50
WACC	10.00%

What is the firmâs 2014 current ratio? Round your answer to two decimal places.

The 2014 current ratio indicates that Rosnan has -Select-insufficientsufficientCorrect 1 of Item 3 current assets to meet its current obligations as they come due.

What is the firmâs 2014 total assets turnover ratio? Round your answer to four decimal places.

Given the 2014 current and total assets turnover ratios calculated above, if Rosnanâs 2014 quick ratio is 1.0 then an analyst might conclude that Rosnanâs fixed assets are managed -Select-efficientlyinefficientlyCorrect 1 of Item 4.

What is the firmâs 2014 debt-to-capital ratio? Round your answer to two decimal places.
%

If the industry average debt-to-capital ratio is 30%, then Rosnanâs creditors have a -Select-smallerbiggerCorrect 1 of Item 5 cushion than indicated by the industry average.

What is the firmâs 2014 profit margin? Round your answer to two decimal places.
%

If the industry average profit margin is 12%, then Rosnanâs lower than average debt-to-capital ratio might be one reason for its high profit margin.
-Select-TrueFalseCorrect 1 of Item 6

What is the firmâs 2014 price/earnings ratio? Round your answer to two decimal places.

Using the DuPont equation, what is the firmâs 2014 ROE? Round your answer to two decimal places.
%

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Business Administration - Accounting & Financial Planning FIN401 Lecture Notes - Lecture 3: Suncor Energy, Profit Margin, Financial Statement

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