3 DuPont Analysis Playing the Numbers Game Numbers! I need to see numbers!\" exc

Question

3 DuPont Analysis Playing the Numbers Game Numbers! I need to see numbers!" exclaimed Marcus in response to com- ments made by the assistant vice-president of Finance, Jeff Smith. Marcus Lenovo, president and chief executive officer of Duralex Inc., had been instrumental in significantly increasing the company's size during his first five years in office. He spearheaded some successful marketing campaigns and revamped the production facilities by adopting the latest technology in injection molding. He also implemented various cost-cutting measures and introduced performance plans to boost efficiency. Foremen and supervisors were offered stock option incentives, and bonuses were tied to earnings per share (EPS) growth Duralex Inc., a medium-sized plastic molding company, was founded in 2008 and was located in Midland, Michigan. The company supplied molded plastic products to various processing industries as well as end-users. It enjoyed a fairly diversified base of customers, ranging from automobile and home products manufacturers to the federal government. After an initial period of sluggish growth, the firm's revenues and profits had almost quadrupled. Most of the increase had been achieved under Lenovo's lead- ership. The plastics business offered potential for high profit margins, and as a result it attracted many competitors. Despite the fierce competition, Duralex's stock, which traded in the over-the-counter market, had tripled in value over the past five years, making the shareholders very happy

Explanation / Answer

Common Size Financial statements are of great use for carrying out compative study and analysis. This helps to identify the core focus area of Competitors and accordingly, we can plan our business strategy. So yes, Jim is right for recommending Common size financials.

Few observations based the common size statement of DURALEX and APEX MOLDING are as below :

1. DURALEX operates @ 25% Gross margin whereas APEX Molding operates @ 33% Gross margin. Also, EBITDA is 12%(DURALEX) vs 16%(APEX Molding).

2. Over last few years, DURALEX took huge Long Term debt and simaltaneously, increased Intangible assets(Patents, Goodwill etc as not specified). This has enabled them to explore new business opportunites and also providing the tax benifits (Interest Cost and Amortisation) whereas, APEX Molding haven't invested anything on R&D to increase the future prospect for exploring more business areas.

In the scenario of stagnant business policy and no great future prospect in terms of technological advancement and enhancement, shareholders might not be very keen to be associated with such company.

Note : Under Income statement for DURALEX, Total Income available for Interest Exp is NOT CORRECT in year # 2015 and 2014.

         15.00

         36.00

DURALEX Inc APEX Molding Assets Current Assets 2015 2014 2013 2012 2015 2014 2013 2012 Cash & Mktable Sec            3.20            4.80            5.00            0.60 0.3 1.1 0.3 2.9 A/R          46.10          59.60          50.10          20.90 17.9 16.1 13 7 Inventory          27.40          24.10          25.30          12.80 12.9 11.7 9.4 3.9 Other CA            4.10            7.60            6.90            0.40 1.7 1.3 1.4 1.7 Total Current Assets          80.80          96.10          87.30          34.70          32.80          30.20          24.10          15.50 Non Current Assets Plant Property & Equipments          94.20          98.70          87.90          47.70 42.6 36.9 27.8 20.3 Acc Depreciation          38.30          31.40          27.70          19.30 15.5 11.1 7.1 3.9 Plant Property & Equipments(Net)          55.90          67.30          60.20          28.40 27.1 25.8 20.7 16.4 Intangibles        121.40        172.20        182.00          32.80 30 31.1 18.2 1.9 Othwr NCA            7.70            8.30          10.50            3.50 0.2 0.6 1 2.2 Total NCA        185.00        247.80        252.70          64.70          57.30          57.50          39.90          20.50 Total Assets        265.80        343.90        340.00          99.40          90.10          87.70          64.00          36.00 Liab & Eq Current Liabilities A/P 20.5 23.8 20.5 9.7 6.9 7.1 5.3 2 Short Term Debt 6.6 5.6 3.5 3.9 6.7 5.8 2.7 2.7 Other CL 35 33.7 35.7 12.9 6.5 7.1 5.3 2.7 Total Current Liabilities          62.10          63.10          59.70          26.50          20.10          20.00          13.30            7.40 Non Current Liabilities Long Term Debt 215.2 221.3 222.3 30.7 25.8 28 18.7 5.4 Deferred Income tax 0 0 0 0 0.1 0.5 0 1.4 Other NC Liabilities 3 2.9 0 0 3 3.9 3.9 0.8 Total Non Current Liab        218.20        224.20        222.30          30.70          28.90          32.40          22.60            7.60 Total Liab        280.30        287.30        282.00          57.20          49.00          52.40          35.90

         15.00

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.