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Option #1: Financial Analysis Made Easy

DuPont Analysis (see below for a brief overview) is a quick and relatively easy way to assess the overall health of a firm in four simple ratios.

DuPont Analysis consists of breaking down return on equity (ROE) into essential parts as follows:

• ROE = PM (profit margin) * AT (asset turnover) * EM (equity multiplier).
• ROE = net income/total equity; this ratio is very important to stockholders.
• PM = net income/total revenue; it tells you how effectively costs were controlled by management.
• AT = total revenue/total assets; it tells you how efficiently assets are being used to generate revenues.
• EM = total assets/total equity; it tells you how reliant the firm is on debt.

You can read more about each of these ratios in your textbook.

Directions:

In this assignment, you will perform DuPont Analysis on Caterpillar Inc. and its closest competitor, CNH Global.

1. You will report the ratios and your analysis in a Word document.
2. In your Word document, set up a table that organizes the four Caterpillar ratios for each of the past three years and the CNH Global ratios for the most recent year only and then analyze your results.
   1. To assess the health of Caterpillar, you will find the 3rd quarter financial statement, found in the link below. (Use the consolidated part for the third quarter of 2015.)
   2. Compute all parts of the DuPont Ratio for the past three years, and then compare those numbers to the most recent year ratios of one of the company’s closest competitors, CNH Global, 3rd quarter financial statement. Click the link below for the quarterly reports.
3. Your analysis should include a discussion of the strengths or weaknesses revealed in each ratio.
4. All four ratios should be discussed.
5. Your document should be 2-4 pages long. Your paper should conform to CSU-Global Guide to Writing and APA (Links to an external site.)Links to an external site..

Note: Financial information and competitor information is relatively easy to find. You can use Yahoo Finance ( http://finance.yahoo.com/ (Links to an external site.)Links to an external site.) and type in a company’s name. Once you have the firm’s page, look on the left side of the screen (in a blue box) and find the firm’s Balance Sheet and Income Statement links. You can also find the firm’s closest competitor and follow the same process in getting their financials.