9. An analysis of company performance using DuPont analysis
A sheaf of papers in his hand, your friend and colleague, Landon, steps into your office and asked the following.
LANDON: Do you have 10 or 15 minutes that you can spare?
YOU: Sure, I've got a meeting in an hour, but I don't want to start something new and then be interrupted by the meeting, so how can I help?
LANDON: I've been reviewing the company's financial statements and looking for ways to improve our performance, in general, and the company's return on equity, or ROE, in particular. Amelia, my new team leader, suggested that I start by using a DuPont analysis, and I'd like to run my numbers and conclusions by you to see whether I've missed anything.
Here are the balance sheet and income statement data that Amelia gave me, and here are my notes with my calculations. Could you start by making sure that my numbers are correct?
YOU: Give me a minute to look at these financial statements and to remember what I know about the DuPont analysis.
Balance Sheet Data
Cash $1,200,000
Accounts receivable $2,400,000
Inventory $3,600,000
Current assets $7,200,000
Net fixed assets $7,200,000
Total assets $14,400,000
Accounts payable $1,440,000
Accruals $480,000
Notes payable $1,920,000
Current liabilities $3,840,000
Long-term debt $5,520,000
Total liabilities $9,360,000
Common stock $1,260,000
Retained earnings $3,780,000
Total equity $5,040,000
Total debt and equity $14,400,000
Income Statement Data
Sales $24,000,000
Cost of goods sold $14,400,000
Gross profit $9,600,000
Operating expenses $6,000,000
EBIT $3,600,000
Interest expense $892,800
EBT $2,707,200
Taxes $676,800
Net income $2,030,400
