Discussion Fw1

1. How Did Deltic Timber Corporation’s (DEL) 3.41% ROE Fare Against The Industry? – By Liz Campbell

Simply Wall St. October 5, 2017

https://finance.yahoo.com/news/did-deltic-timber-corporation-del-113618019.html

Deltic Timber Corporation (DE)L ROE compared to industry did not fare well because is lower which states management does not reinvest capital in successful assets.

2. With A Recent ROE Of 3.33%, Can Glen Burnie Bancorp (GLBZ) Catch Up To Its Industry?- By Brent Freeman

Simply Wall St. October 5, 2017

https://finance.yahoo.com/news/recent-roe-3-33-glen-195619168.html

As per the Glen Burnie Bancorp (GLBZ) analysis if the current dividend yield of 3.4% is removed it can increase the ROE from 3.33% to 6.73% and with the expected growth of 17.7% in earnings it can be possible to catch up to its industry.

3. What You Must Know About Continental Materials Corporation’s (CUO) Return on Equity- By Bernadette Hatcher

Simply Wall St. October 5, 2017

https://finance.yahoo.com/news/must-know-continental-materials-corporation-180614863.html

Continental Materials Corporation (CUO) ROE is substandard at 3.81% compared to the industry of 14.22%. Per the latest analysis dividends are zero but there is an expected growth of 41.3% in annual earnings. It seems feasible that ROE can increase given that the forecast is over 40% but only if management can reinvest successfully its capital assets.

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This discussion assignment learning point focused on the Return on Equity (ROE) which is one of the ratios that can give someone an overall overview on how the company manages shareholders’ money contributions. There are several factors that can influence the ROE and as per the DuPont Formula the financial metrics that drives it are operating efficiency, asset use efficiency and financial leverage. A company with high dividends can have a lower ROE because it decreases its available cash. In the workplace the ROE can be used comparing the ROE from its competitors or industry and with further analysis to check the debt ratios, dividends, and asset turnover to make an informed decision on how well the company’s management team manages its cash. Based on group discussions we selected Nike as the company to provide ROE analysis on. Below are the questions and answers for this assignment.

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.

NIKE Inc	2016-05	2017-05	2018-05
Profitability
Return on Equity (ROE)	30.12	34.38	17.4
Net Profit Margin	11.61	12.34	5.31
Asset Turnover (Average)	1.51	1.54	1.59
Financial Leverage (Average)	1.75	1.87	2.3
Liquidity Financial Health
Debt/Equity	0.16	0.28	0.35

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.

ADIDAS AG	2016-05	2017-05	2018-05
Profitability
Return on Equity (ROE)	11.23	16.76	16.98
Net Profit Margin	3.75	5.27	5.17
Asset Turnover (Average)	1.31	1.35	1.43
Financial Leverage (Average)	2.35	2.34	2.25
Liquidity Financial Health
Debt/Equity	0.26	0.15	0.15

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

The main factor for changes in 2016 and 2017 was the increased debt incurred so the ROE in the short term increased as well at the expense of the long-term interest payment. On 2016 and 2017 for every dollar invested $0.30 and 0.34 was returned. The increased ROE for those two years is high because the Net Income higher due to the smaller interest expense payments for the cash received. The decreased ROE for 2018 is due to the decreased profitability by the Net Profit Margin and increased asset turnover.

4. Compare the ratios of you 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? 

In order for Nike to increase the ROE by comparing to ADIDAS the management company should take on more debt, decrease its asset turnover, and decrease dividends.