URGENT HOMEWORK

Open the DuPont model worksheet in the Excel template for Team Assignment 4 (available in the lecture notes folder).  Examine ROE and its components.  Notice the following:

7.    ROA = ROS X Asset Turnover

= (Net Income/Sales) X (Sales/Average Assets)

a.   Notice that this ratio includes a measure of the efficiency of your income statement (the ability of your company to generate income from the sales you achieved), and a measure of the efficiency of your balance sheet (the ability of your company to generate sales from the assets you employed).

b.   Reference the financial data from the Courier for the last two competition rounds. Use the spreadsheet to compute ROS, Asset Turnover, and ROA for your company and for your nearest competitor for the last two competition rounds.

8.    ROE = ROA X Financial Structure Leverage

= (Net Income/Average Assets) X (Average Assets/Average Shareholders’ Equity)

a.      Notice that this ratio includes a measure of the efficiency with which your company generated income from its average assets employed (ROA) and a measure of the proportionate amount of debt your company utilized to finance its assets (financial structure leverage).

b.      In general, the higher the financial structure leverage, the higher the risk assumed by your company.  Your creditors and shareholders will require a greater return on their investment to compensate for the risk they are assuming when your company is highly leveraged.

c.    Reference the financial data from the Courier for the last two competition rounds. Use the spreadsheet to compute ROA, Financial Structure Leverage, and ROE for your company and for your nearest competitor for the last two competition rounds.

Respond:

Use the calculations you completed in the DuPont model above to discuss the following:

9.    Select the DuPont ratio that your company most needs to improve (i.e., ROE, financial structure leverage, ROA, ROS, or Asset Turnover).   What changes could you make to improve the ratio you selected?  What, specifically, would making this change entail?  For the selected ratio, delve deep into what affects the numerator and denominator instead of recommending just increasing the numerator and decreasing the denominator.  (For example, does your company have a high percentage of non-productive assets compared to your competitors?  How could you use your assets more efficiently to generate sales?)

10.   Discuss three strategic opportunities that you can identify by examining your nearest competitor’s DuPont model.  For example, how does their leverage ratio compare to yours?  If it is much higher than yours, does this signal a cash shortage for your competitor?  What opportunities might this present?