DuPont Analysis (Case Study Sample)

DuPont Analysis
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Institution
Part 1
Return on equity, mostly abbreviated as ROE is one of the strongest indicators of a financially stable company. It is a tool used by investors as it indicates what the return is on the part of the company that belongs to equity. The calculations made give a summation of how capable the management is in turning stockholder’s equity into gainful returns. A DuPont analysis breaks down ROE into separate parts in order to establish the exact source of ROE (Rich, 2010, p.646). This is important because there are easy ways to produce high ROEs through manipulation and actually have no increase in the performance of the company. One of these ways is through an increase in debt.
The comparative analysis will be between the Coca-Cola Company trading on the NYSE as KO and PepsiCo, Inc. trading on the NYSE as PEP. This analysis will calculate ROE, ROA, asset turnover, equity multiplier and profit margin. Financial information from the corporation’s’ websites are as follows;
Coca-Cola2011201020092008ROE27.5%42.3%30.1%NI8572118096824TA79974729214867140519Avg TA764476079644595ShEq31365310032479920472Avg ShEq311842790122635Rev465423511930990EBT11439142438946EBIT10732137418231PepsiCo.2011201020092008ROE30.9%32.8%41.1%NI644362305946TA72822681533984835994Avg TA705175400037921ShEq20588211641680412106Avg ShEq208761898414455Rev665045783843232EBT883482328079EBIT963383328044
With this data and the use of the formula; ROE ={Net Income/Total Assets} x {Total Assets/ Stockholder’s Equity} = Tx B x Interest B x EBIT Margin x Asset Turnover x Leverage, these results as tabulated below are obtained.
Coca-Cola201120102009ROE0.27490.42320.3015Tax Burden0.74940.82910.7628Interest Burden1.06591.03651.0869EBIT Margin0.23060.39130.2656Asset Turnover0.60880.57770.6949Leverage2.45152.17901.9701PepsiCo.201120102009ROE0.30860.32820.4113Tax Burden0.72930.75680.7360Interest Burden0.91710.98801.0044EBIT Margin0.14480.14410.1861Asset Turnover0.94311.07111.14101Leverage3.37792.84452.6234
The Coca-Cola Company has a strong ROE in the period under examination with a percentage range that is large and even the lower side being way above the required 15% threshold. PepsiCo’s range is, however, larger lying between 30% on the lower side and 41% on the higher side. Though the results are almost similar to those of Coca-Cola, it can be considered to be the better performing company because the minimum is higher at 30% compared to Coca-Cola’s 27% and the difference between the lower and higher side is much narrower for PepsiCo. The two companies both have strong profit margins because of the markets that they control though Coca-Cola is better than the main competitor PepsiCo.
Part 2


Vertical analysis or common-size analysis converts each line of financial information into data that can be used to compare in ...