Industry Averages AdvancedMed ValueEquip Balance Sheet (S\'s in Thousands) Asset
ID: 2397493 • Letter: I
Question
Industry Averages AdvancedMed ValueEquip Balance Sheet (S's in Thousands) Assets as Receivables Inventory Total Current Assets 20,000 170,000 85,000 275,000 95,000 250,000 225,000 570,000 105,000 475,000 300,000 880,000 Property, Plant, & Equipment Accumulated Depreciation Total Fixed Assets 800,000 100,000 700,000 2,000,000 500,000 1,500,000 3,080,000 1,000,000 2,080,000 975,000 2,070,000 = Total Assets 2,960,000 Liabilities Accounts Payable Short Term Notes Payable Total Current Liabilities 75,000 135.000 210,000 170,000 165,000 335,000 275,000 285,000 560,000 Long Term Debt 445,000 625,000 1,050,000 Total Liabilities 655,000 960,000 1,610,000 Equity Retained Earnings Common Stock 75,000 245,000 320,000 300,000 810,000 1.110,000 450,000 900,000 ,350,000 Total Equity Total Liabilities and Equity 975,000 2,070,000 2,960,000 Income Statement Accounts Revenue Cost of Goods Sold General Administrative Depreciation Interest Expense Taxes Total Net Income 1,500,000 565,000 650,000 80,000 46,400 55.510 103,090 4,200,000 2,500,000 1,150,000 200,000 63,200 100.380 186,420 6,000,000 3,000,000 2,050,000 308,000 106.800 187.320 347,880Explanation / Answer
DuPont Analysis is an expression which break ROE into 3 parts : NeT profit margin* Asset turnover * equity multiplier.
It helps measure profitability, asset efficiency and financial leverage.
NeT profit Margin : It shows how good the company is converting its revenue into profits. If you look in the above table Advancedmed has the highest net profit margin that means it has good sales and decreased expenses. If you would have seen in absolute numbers this clarity wasn’t possible as the sales is least. But it has decreased expenses and therefore it is in very good NeT profit margin position earning more profits then industry average. Where as value equip has increased sales but it also has increased expenses and therefore earns way less net profit than the industry average.
Asset Turnover Ratio: For every Rs in asset , Advancedmed generated rs.1.54 in sales and value equip generated Rs.2.02 in sales. Where as the industry average is 2.03. The industry average and value equip have almost similar asset turnover ratio. Where as Advancedmed has low asset turnover ratio indicating lesser efficiency in managing fixed-asset investments.
Equity Multiplier: A high equity multiplier indicates that the company has been using more debt than quite to finance its asset purchases. Also indicating company is at risk. It’s debt burden is more. In this case Advancedmed has increased equity multiplier indicating debt is used to finance its asset.
Though Advancedmed is financing most of its asset through debt the profitability of the company is high and hence telling that the company is able to pay off its debt well. And Having higher DuPont which the return on equity of the company Advanced med is in better position in comparison to industry average and value equip. where as Value equip has way lower RoE than industry average showing that the investors are not earning enough returns on their investment.
Particular Advancedmed Value Equip Industry Average Formula NeT profit Margin 6.87% 4.44% 5.80% NeT profit/sales*100 Asset Trurnover 1.54 2.02 2.03 Sales/Total Asset Equity Multiplier 3.04 1.86 2.19 Total Asset/ Total Euity DuPont Analysis 32.16 16.68 25.78