Suppose that an analyst has noticed that the return on equity of the XYZ Company has declined
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Question:
Suppose that an analyst has noticed that the return on equity of the XYZ Company has declined from 2012 to 2013.
(millions) | 2013 | 2012 |
Sales | $1,000 | $900 |
Earnings before interest and taxes | $400 | $380 |
Interest expense | $30 | $30 |
Taxes | $100 | $90 |
Total assets | $2,000 | $2,000 |
Shareholders’ equity | $1,250 | $1,000 |
a. Calculate the followings for 2013 and 2012
Return on equity
Return on assets
Financial leverage ratio
Total asset turnover
Net profit margin
Operating profit margin
b. Using the DuPont formula, explain the source of this decline.
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