Exercise 12-83
Dupont Analysis
Financial statements for Steele Inc. follow.
Steele Inc. | |||||||
Consolidated Income Statements | |||||||
(in thousands except per share amounts) | |||||||
2019 | 2018 | 2017 | |||||
Net sales | $7,245,088 | $6,944,296 | $6,149,218 | ||||
Cost of goods sold | (5,286,253) | (4,953,556) | (4,355,675) | ||||
Gross margin | $1,958,835 | $1,990,740 | $1,793,543 | ||||
General and administrative expenses | (1,259,896) | (1,202,042) | (1,080,843) | ||||
Special and nonrecurring items | 2,617 | 0 | 0 | ||||
Operating income | $701,556 | $788,698 | $712,700 | ||||
Interest expense | (63,685) | (62,398) | (63,927) | ||||
Other income | 7,308 | 10,080 | 11,529 | ||||
Gain on sale of investments | 0 | 9,117 | 0 | ||||
Income before income taxes | $645,179 | $745,497 | $660,302 | ||||
Provision for income taxes | (254,000) | (290,000) | (257,000) | ||||
Net income | $391,179 | $455,497 | $403,302 |
Steele Inc. | |||||
Consolidated Balance Sheets | |||||
(in thousands) | |||||
ASSETS | Dec. 31, 2019 | Dec. 31, 2018 | |||
Current assets: | |||||
Cash and equivalents | $320,558 | $41,235 | |||
Accounts receivable | 1,056,911 | 837,377 | |||
Inventories | 733,700 | 803,707 | |||
Other | 109,456 | 101,811 | |||
Total current assets | $2,220,625 | $1,784,130 | |||
Property and equipment, net | 1,666,588 | 1,813,948 | |||
Other assets | 247,892 | 248,372 | |||
Total assets | $4,135,105 | $3,846,450 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
Current liabilities: | |||||
Accounts payable | $250,363 | $309,092 | |||
Accrued expenses | 347,892 | 274,220 | |||
Other current liabilities | 15,700 | 0 | |||
Income taxes | 93,489 | 137,466 | |||
Total current liabilities | $707,444 | $720,778 | |||
Long-term debt | 650,000 | 541,639 | |||
Deferred income taxes | 275,101 | 274,844 | |||
Other long-term liabilities | 61,267 | 41,572 | |||
Total liabilities | 1,693,812 | 1,578,833 | |||
Stockholders’ equity: | |||||
Preferred stock | $100,000 | $100,000 | |||
Common stock | 89,727 | 89,727 | |||
Additional paid-in capital—common stock | 128,906 | 127,776 | |||
Retained earnings | 2,397,112 | 2,136,794 | |||
$2,715,745 | $2,454,297 | ||||
Less: Treasury stock, at cost | (274,452) | (186,680) | |||
Total stockholders’ equity | $2,441,293 | $2,267,617 | |||
Total liabilities and stockholders’ equity | $4,135,105 | $3,846,450 |
Use the information above and below to respond to the following
requirements.
Statement Item | January 1, 2018 (in millions) | |
Total assets | $3,485,233 | |
Total stockholders’ equity | 2,083,122 |
Year Ended December 31, | ||||
Industry Averages | 2019 | 2018 | ||
Return on equity | 5.31% | 12.54% | ||
Profit margin | 4.00 | 6.21 | ||
Asset turnover | 0.83 | 1.96 | ||
Leverage | 1.60 | 1.03 |
Required:
Perform a Dupont analysis for 2018 and 2019. Round intermediate calculations and your answers to two decimal places.
Return on Equity | |
2019 | % |
2018 | % |
profit margin = net income / net sale
2019 = 391,179 / 7,245,088
= 0.05
2018 = 455,497 / 6,944,296
= 0.07
assets turnover = net sale / average total assets
2019 = 7,245,088 / 3,990,777.5
= 1.82
2018 = 6,944,296 / 3,665,841.5
= 1.89
financial leverage = total assets / total equity
2019 = 4,135,105 / 2,441,293
= 1.69
2018 = 3,846,450 / 2,267,617
= 1.70
Du Pont analysis
Return on equity = Profit margin x assets turnover x financial leverage
2019 = 0.05 x 1.82 x 1.69
= 0.1537 x 100 = 15.37%
2018 = 0.07 x 1.89 x 1.70
= 0.2249 x 100 = 22.49%
Return on Equity | |
2019 | 15.37% |
2018 | 22.49% |
Get Answers For Free
Most questions answered within 1 hours.