Question

1. Here is the DuPont info on the Symphony Inc. and its industry.

                                                      ROE = NPM   X          TATO X          EQUITY MULTIPLIER

DuPont (Symphony):                  14%     3%       X          2          X          2.33

DuPont (Industry):                      18%     3.1%   X          2.47    X          2.35

You are the Financial Manager of this company. Based on the info above, which parts of the business you would be most concerned with? In trying to solve this problem, what subcomponents you will examine further? Give examples.

Answer 1

We see NPM and Equity multiplier are mostly in line with the industry. The major difference is from TATO or total asset turnover hence we need to utilise TATO further the reason why the firm is not able to efficiently utilise the assets.

It might be that the firm is not able to generate enough sales due to productivity issues or poor product quality or poor brand image or lack of awareness. It might also be due to technological outdated equipments the efficiency of the assets is low. Or the assets are having a lot of wear and tear, or there is a lot of labor /raw material/fuel/power issues.