3 DuPont Analysis Playing the Numbers Game Numbers! I need to see numbers!\" exc
ID: 2335634 • Letter: 3
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 happyExplanation / Answer
Liquidity
Current Ratio = (Current Assets) / Current Liabilities
Quick Ratio = (Current Assets-inventory) / (Current Liabilities)
Cash Ratio = (Cash + Short-Term or Marketable Securities) / (Current Liabilities)
Leverage
Debt-to-Assets Ratio = Total Debt / Total Assets
Debt-to-Equity Ratio = Total Debt / Total Equity
Activity
Inventory turnover ratio=Cost of Goods Sold/Average Inventory for the year
Receivables turnover ratio=Annual Sales on Credit/Average Accounts Receivable
Total Assets Turnover ratio=Annual Sales/Total Assets
Profitability
Based on sales-
GROSS PROFIT MARGIN= gross profit/total sales
NET PROFIT MARGIN=net profit/total sales
Based on investment-
RETURN ON ASSETS (ROA)= Net Income/Total total asset
RETURN ON EQUITY (ROE)=Net Income/Total Equity
Calculation
Final Calculation
Apex's liquidity is always above 1.5 but decresed from 2012. Duralex's liquidity is higher in comparison and decrased in 2015. Apex's leverage is folowing the standard where as Duralex's is highly debt driven. Duralex's acitivity is very fluctuating or volatile that is not good from operational point of view. Same feature goes with profitability of Duralex.
So in comparison, from leverage,activity and profitability Duralex is riskier company but liquidity of Duralex is better than Apex. Duralex is better in short term but it is weaker than Apex from management and structural side.
Duralex Apex 2012 2013 2014 2015 2012 2013 2014 2015 Liquidity Current ratio 34.7/26.5 87.3/59.7 96.1/63.1 80.8/62.1 15.5/7.4 24.1/13.2 30.2/19.9 32.8/20.1 quick ratio (34.7-12.8)/26.5 (87.3-25.3)/59.7 (96.1-24.1)/63.1 (80.8-27.4)/62.1 (15.5-3.9)/7.4 (24.1-9.4)/13.2 (30.2-11.7)/19.9 (32.8-12.9)/20.1 cash ratio 0.6/26.5 5/59.7 4.8/63.1 3.2/62.1 2.9/7.4 0.3/13.2 1.1/19.9 0.3/20.1 leverage Debt-to-Assets Ratio 57.2/99.4 282/340 287.3/343.9 280.3/265.8 15/36 35.8/64 52.3/87.7 49/90.1 Debt-to-Equity Ratio 57.2/42.2 282/58 287.3/56.6 280.3/-14.5 15/21 35.8/28.1 52.3/35.4 49/41.1 activity Inventory turnover ratio 84.1/12.8 160/25.3 184.5/24.1 222.2/27.4 27.2/3.9 55.5/9.4 69.2/11.7 82.6/12.9 Receivables turnover ratio 129.3/20.9 252.4/50.1 294/59.6 297/46.1 43.2/7 85.7/13 106.7/16.1 123.6/17.9 Total Assets Turnover ratio 129.3/99.4 252.4/340 294/343.9 297/265.8 43.2/36 85.7/64 106.7/87.7 123.6/90.1 profitability GROSS PROFIT MARGIN 45.2/129.3 92.4/252.4 109.5/294 74.8/297 16/43.2 30.2/85.7 37.5/106.7 41/123.6 NET PROFIT MARGIN 7.3/129.3 3.7/252.4 2/294 (-71.5)/297 2.3/43.2 4.9/85.7 6.6/106.7 7.3/123.6 RETURN ON ASSETS 7.3/99.4 3.7/340 2/343.9 (-71.5)/265.8 2.3/36 4.9/64 6.6/87.7 7.3/90.1 RETURN ON EQUITY 7.3/42.2 3.7/58 2/56.6 (-71.5)/-14.5 2.3/21 4.9/28.1 6.6/35.4 7.3/41.1Related Questions
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