A significant portion of developing your analytical mindset happens before you analyze data. While you already...

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A significant portion of developing your analytical mindset happens before you analyze data. While you already have a fundamental understanding of the DuPont Method and are aware of the data elements available to you, you have not yet determined the best way to analyze the data to provide the most relevant insights. To gather the most relevant insights, you must start by asking the right questions of the data. In this section, you will first think through the DuPont Method in more detail so you understand some of the business context. From there, you will identify questions for the data that will provide insights to your stakeholder. Assume your stakeholder is an investor whose objective is to make some quality investments in the near future based on the performance of the companies in this data set. Your stakeholder is interested in both an industry recommendation and a company recommendation. Required 1. Describe whether you want a high value or a low value for each ratio, independent of the other ratios. Return on equity: Profit margin ratio: Asset turnover ratio: - Financial leverage ratio: 2. The profit margin ratio is the only ratio that makes up ROE that can be negative (except in relatively rare cases). Describe how the interpretation of the Asset Turnover Ratio and the Financial Leverage Ratio change based on whether the Profit Margin Ratio is positive or negative. 3. How can a company improve each ratio? Make sure to discuss how changes in either the numerator or denominator can improve the ratio. For each ratio, do you think it is "better" to focus on improving the numerator or denominator? 4. Before you analyse the data, it is helpful to develop an expectation of what you think you might see. What industry do you believe will have the highest and lowest values for the 2015 fiscal year for each item below? Why? Return on equity Profit margin ratio Asset turnover ratio Financial leverage ratio A significant portion of developing your analytical mindset happens before you analyze data. While you already have a fundamental understanding of the DuPont Method and are aware of the data elements available to you, you have not yet determined the best way to analyze the data to provide the most relevant insights. To gather the most relevant insights, you must start by asking the right questions of the data. In this section, you will first think through the DuPont Method in more detail so you understand some of the business context. From there, you will identify questions for the data that will provide insights to your stakeholder. Assume your stakeholder is an investor whose objective is to make some quality investments in the near future based on the performance of the companies in this data set. Your stakeholder is interested in both an industry recommendation and a company recommendation. Required 1. Describe whether you want a high value or a low value for each ratio, independent of the other ratios. Return on equity: Profit margin ratio: Asset turnover ratio: - Financial leverage ratio: 2. The profit margin ratio is the only ratio that makes up ROE that can be negative (except in relatively rare cases). Describe how the interpretation of the Asset Turnover Ratio and the Financial Leverage Ratio change based on whether the Profit Margin Ratio is positive or negative. 3. How can a company improve each ratio? Make sure to discuss how changes in either the numerator or denominator can improve the ratio. For each ratio, do you think it is "better" to focus on improving the numerator or denominator? 4. Before you analyse the data, it is helpful to develop an expectation of what you think you might see. What industry do you believe will have the highest and lowest values for the 2015 fiscal year for each item below? Why? Return on equity Profit margin ratio Asset turnover ratio Financial leverage ratio

Answer rating: 100% (QA)

High value or low value for each ratio Return on equity A high value for return on equity indicates that the company is generating higher profits relative to its shareholders equity which is desirable ... View the full answer