Essays Guru

In your initial response to the topic you have to answer all questions.

1. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last three years for your company. You also may use debt/equity ratio in your analysis.

ULA Beauty, Inc.: NASDAQ; ULTA

Fiscal Year	2016	2017	2018
Return on Equity %	23.79% (adjusted 23.5%)	27.38% (adjusted 28.3%)	33.40%
Net Profit Margin %	8.15%	8.44%	9.44%
Asset Turnover	1.86	2.03	2.16
Fiscal Leverage	1.55	1.65	1.64

Return on Equity = profit margin x asset turnover x financial leverage

Return on Equity shows the percentage of revenue ULTA Beauty, Inc. acquires from its shareholders investments.

2016 = 8.15 x 1.86 x 1.55 = 23.49 = 23.5%

2017 = 8.44 x 2.03 x 1.65 = 28.26 = 28.3%

2018 = 9.44 x 2.16 x 1.64 = 33.44 = 33.4%

Net Profit Margin = Net Income / Revenue

Net Profit Margin shows how much money ULTA Beauty, Inc. makes after paying for all its expenses.

2016 = 320 / 3,924 = 8.15%

2017 = 410 / 4,855 = 8.44%

2018 = 555 / 5,885 = 9.43%

Asset Turnover Equation = Net Sales / Average total Assets

Asset Turnover illustrates how much revenue ULTA Beauty, Inc. can make from its asset base.

2016 = 1.86

2017= 2.03

2018= 2.16

Financial Leverage

Financial Leverage reflects the sustainability of ULTA Beauty, Inc. and basically can increase return on equity when looking at how much debt ULTA Beauty, Inc. has.

2016 = 1.55

2017 = 1.65

2018 = 1.64

2. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last year for its major peer competitor. You also may use debt/equity ratio of peer competitor in your analysis.

Amazon: NASDAQ; AMZN

Fiscal Year	2016	2017	2018
Return on Equity %	14.52%	12.91%	28.27%
Net Profit Margin %	1.74%	1.71%	4.33%
Asset Turnover	1.83	1.66	1.58
Fiscal Leverage	4.32	4.74	3.73

3. Has the company’s ROE changed over the last three years? What was the main factor that influenced this change?

The ROE has steadily increased over the last three years which is normally a good thing for companies. Upon my analysis, this is due in part to increases in Net Profit Margin. This could indicate an increase in sales or that ULTA may have raised its prices. Over the past two years Fiscal Leverage has been stagnant remaining around 1.64 -1.65, while the asset turnover rate has been declining. This indicates that ULTA Beauty may not be doing well financially, and ULTA Beauty may not be utilizing its’ assets efficiently enough to generate sales.

4. Compare the ratios of your company to the peer competitor. If the management of the company would like to improve their return on equity, what should the management of the company do? 

When comparing ULTA Beauty, Inc. to Amazon, I initially noticed the difference in asset turnover and fiscal leverage. In 2016 both companies had an asset turnover rate of 1.86 (ULTA) and 1.83 (AMZN) respectively – which is relatively low. However, for fiscal years 2017 and 2018 ULTA has experienced an increase, while AMZN has experienced a decrease. A decrease in asset turnover indicates that a company may have high profit margins and is probably performing better than a company with increasing asset turnover rates.

5. Reflection – the students also should include a paragraph in the initial response in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.

Completing this assignment allowed me to evaluate the parts of two companies’ Return On Equity (ROE). While I believe this information would be better suited in assisting investors, as an accounting major I can see where using the DuPont analysis can be beneficial when trying to determine a company’s profitability. Using accounting equations and data to determine the REO affords those in the finance industry a more comprehensive understanding of a company’s strengths and weaknesses. What I found challenging with the assignment is answering question 3, which was explaining the main factor that influenced the change in ROE. While I understand the components of the DuPont analysis, it does not provide context regarding the reason certain ratios are high or low.