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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.