Case Study
Answer
1. 1. Compute the profitability ratios, including the a and b components (DuPont Methods)
A. Net Income / Total Assets 2004 0.06 2005 0.07 2006 0.07
B. Sale / Total asset 2004 1.35 2005 1.33 2006 1.43
C. Net Income / Stockholder equity 2004 0.15 2005 0.19 2006 0.15
D. Debt Asset / Total asset 2004 0.40 2005 0.38 2006 0.39
E. Net Income / Sale 2004 0.05 2005 0.05 2006 0.04
2. Write a brief one-paragraph description of any trends that appear to have taken place over the three-year time period.
Return on assets explains the relationship between the net income and total assets. This ratio tells how efficiently the company is using the assets to generate the net income. Return on assets has increased slightly in 2005 but it again decreased in 2006.
Assets turnover ratio explains the relationship between sales and assets. This ratio explains the efficiency of the company in generating revenues by using its assets .It also decreased from 1.35 to 1.33 in 2005 and it further increased to 1.43 in 2006. Return on equity explains the relationship between the net income and shareholders’.
It increased from 2004 to 2005 by .04 and then it again decreased by .04. Debt to total assets shows the relationship between the debt and total assets. This ratio shows the % by how much the assets are financed by the debts. This ratio declined slightly in 2005 and then increased slightly from 2006.
3. Based on the adjusted net income figure of $310,818, re compute the profitability ratios for 2006
A. Net Income / Total Assets 2006 0.09 8.85
B. Sale / Total asset 2006 1.43
C. Net Income / Stockholder equity 2006 0.23 23.30
D. Debt Asset / Total asset 2006 0.39 39.09
E. Net Income / Sale 2006 0.06 6.19
4. Now with the adjusted net income numbers as part of the ratios for 2006, write a brief one-paragraph description of trends that appear to have taken place over the three-year time period (refer back to the
1. 1. Compute the profitability ratios, including the a and b components (DuPont Methods)
A. Net Income / Total Assets 2004 0.06 2005 0.07 2006 0.07
B. Sale / Total asset 2004 1.35 2005 1.33 2006 1.43
C. Net Income / Stockholder equity 2004 0.15 2005 0.19 2006 0.15
D. Debt Asset / Total asset 2004 0.40 2005 0.38 2006 0.39
E. Net Income / Sale 2004 0.05 2005 0.05 2006 0.04
2. Write a brief one-paragraph description of any trends that appear to have taken place over the three-year time period.
Return on assets explains the relationship between the net income and total assets. This ratio tells how efficiently the company is using the assets to generate the net income. Return on assets has increased slightly in 2005 but it again decreased in 2006.
Assets turnover ratio explains the relationship between sales and assets. This ratio explains the efficiency of the company in generating revenues by using its assets .It also decreased from 1.35 to 1.33 in 2005 and it further increased to 1.43 in 2006. Return on equity explains the relationship between the net income and shareholders’.
It increased from 2004 to 2005 by .04 and then it again decreased by .04. Debt to total assets shows the relationship between the debt and total assets. This ratio shows the % by how much the assets are financed by the debts. This ratio declined slightly in 2005 and then increased slightly from 2006.
3. Based on the adjusted net income figure of $310,818, re compute the profitability ratios for 2006
A. Net Income / Total Assets 2006 0.09 8.85
B. Sale / Total asset 2006 1.43
C. Net Income / Stockholder equity 2006 0.23 23.30
D. Debt Asset / Total asset 2006 0.39 39.09
E. Net Income / Sale 2006 0.06 6.19
4. Now with the adjusted net income numbers as part of the ratios for 2006, write a brief one-paragraph description of trends that appear to have taken place over the three-year time period (refer back to the