1. Illustrated Solution: Problem 21-33
Chapter 21
Illustrated Solution: Problem 21-33
DuPont Analysis of
Three Companies

2. Problem Introduction Company A Company B Company C Net sales $ 60,000
$ 28,000
$ 21,000
Net income
9,600
1,850
360
Total assets
155,400
21,500
3,200
Total equity
61,000
11,300
1,690

3. Ratios Problem Information Return on sales Asset turnover
Assets-to-equity ratio
Return on assets
Return on equity

4. Ratio Computations Company A Company B Company C
Return on Sales = Net income / Net sales
Company A
Company B
Company C
$9,600
$60,000
$1,850
$28,000
$360
$21,000
= 16.00%
= 6.61%
= 1.71%

5. Ratio Computations Company A Company B Company C
Asset turnover = Net sales / Total assets
Company A
Company B
Company C
$60,000
$155,400
$28,000
$21,500
$21,000
$3,200
= 0.39
= 1.30
= 6.56

6. Ratio Computations Company A Company B Company C
Asset-to-equity ratio = Total assets/Total equity
Company A
Company B
Company C
$155,400
$61,000
$21,500
$11,300
$3,200
$1,690
= 2.55
= 1.90
= 1.89

7. Ratio Computations Company A Company B Company C
Return on assets = Net income / Total assets, or
= Return on sales x Asset turnover
Company A
Company B
Company C
$9,600
$155,400
$1,850
$21,500
$360
$3,200
= 6.18%
= 8.60%
= 11.25%

8. Ratio Computations Company A Company B Company C
Return on equity = Net income / Total equity
Company A
Company B
Company C
$9,600
$61,000
$1,850
$11,300
$360
$1,690
=15.74%
= 16.37%
= 21.30%

9. Ratio Summary Table Ratio Company A Company B Company C
Return on sales
16.00%
6.61%
1.71%
Asset turnover
0.39
1.30
6.56
Assets-to-equity ratio
2.55
1.90
1.89
Return on assets
6.18%
8.60%
11.25%
Return on equity
15.74%
16.37%
21.30%

10. Ratio Analysis
Ratio
Company A
Company B
Company C
Return on sales
16.00%
6.61%
1.71%
Asset turnover
0.39
1.30
6.56
Assets-to-equity ratio
2.55
1.90
1.89
Return on assets
6.18%
8.60%
11.25%
Return on equity
15.74%
16.37%
21.30%
The large utility is Company A. (The large investment in assets, the low asset turnover, and high return on sales suggest Company A is the utility.)
The low return on sales and a high asset turnover suggest Company C is the large grocery story.
Therefore, the large department store is Company B.

11. End of Problem