2016 2015 2014 2013 2012 Inventory Turnover 4.20 4.10 4.10 3.90 3.70 Debt Ratio
ID: 2784864 • Letter: 2
Question
2016
2015
2014
2013
2012
Inventory Turnover
4.20
4.10
4.10
3.90
3.70
Debt Ratio
0.48
0.50
0.49
0.47
0.47
Times Interest Earned
4.60
4.80
5.90
5.70
6.00
Sales as a % of 1996 Sales
1.46
1.23
1.12
1.06
1.00
Net Income as a % of 1996 Income
1.31
1.20
1.10
1.06
1.00
Gross Profit Margin on sales
38.5%
38.8%
38.9%
40.0%
39.7%
Operating Expenses to Net Sales
11.4%
11.3%
11.5%
11.4%
11.7%
Net Profit Margin
7.6%
8.6%
8.9%
9.4%
9.3%
Return on Total Operating Assets
9.4%
9.6%
9.6%
10.0%
10.7%
Did the firm utilized its total operating assets effectively for each of the five years? Show with the DuPont analysis. Discuss the ability of the firm to generate sales based on total operating assets. (7 points)
According to the DuPont analysis,
Return on Net Operating Assets, RNOA = Net operating profit margin X Net operating asset turnover
2016
2015
2014
2013
2012
Inventory Turnover
4.20
4.10
4.10
3.90
3.70
Debt Ratio
0.48
0.50
0.49
0.47
0.47
Times Interest Earned
4.60
4.80
5.90
5.70
6.00
Sales as a % of 1996 Sales
1.46
1.23
1.12
1.06
1.00
Net Income as a % of 1996 Income
1.31
1.20
1.10
1.06
1.00
Gross Profit Margin on sales
38.5%
38.8%
38.9%
40.0%
39.7%
Operating Expenses to Net Sales
11.4%
11.3%
11.5%
11.4%
11.7%
Net Profit Margin
7.6%
8.6%
8.9%
9.4%
9.3%
Return on Total Operating Assets
9.4%
9.6%
9.6%
10.0%
10.7%
Explanation / Answer
Calculations to find Financial leverage--ie. Assets/Equity 2016 2015 2014 2013 2012 Debt Ratio(Total liabilities/Total assets) 0.48 0.50 0.49 0.47 0.47 Then, equity/assets 0.52 0.5 0.49 0.47 0.47 Financial leverage Assets/ equity(Reverse of the above) 1.92 2.00 2.04 2.13 2.13 DU-PONT Equation Net Profit Margin 7.60% 8.60% 8.90% 9.40% 9.30% So, Operating assets turnover(Sales/opg. Assets)(as explained) 1.24 1.12 1.08 1.06 1.15 Financial leverage Assets/ equity(Reverse of the above) 1.92 2.00 2.04 2.13 2.13 ROE=Net profit/Total equity=Net profit Margin*Asset turnover*Financial leverage 18.08% 19.20% 19.59% 21.28% 22.77% As seen from the above table ROE has been consistently decreasing--- from 2012 to 2016 Operating asset turnover : $ sales generated per $ of assets decrease in yrs. 2012 to 2014 ,but is picking up in2015&2016. But it is earning more than it has employed in assets. In all the years, 1 $ of asset has generated more than 1 $ of sales.
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