Question

Exercise 12-83 Dupont Analysis Financial statements for Steele Inc. follow. Steele Inc. Consolidated Income Statements (in...

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 %

Homework Answers

Answer #1

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%
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