MIRAGE RESORTS, INCORPORATED: FINANCIAL ANALYSIS

This research develops a financial analysis of Mirage Resorts, Incorporated. The focus of the financial analysis is on return on equity (ROE) and cash flow. The framework for the ROE analysis is the DuPont Analysis system. Cash flow is analyzed performed using both vertical analysis and horizontal analysis. The period of analysis for both ROE and Cash flow is fiscal 1992 through fiscal 1996.

The DuPont Analysis system is an approach to the assessment of a company's earning power. The initial focus in DuPont Analysis is on component contributions to return-on-investment (ROI). In DuPont Analysis, ROI is defined as total asset turnover times net profit margin. Thus, ROI within this context, is return on total assets (ROA). Within the context of this definition of ROI, the more sales that a company can generate for each dollar of resources applied in running the business, and/or the more profit a company is earn on each dollar of sales the greater will be the ROI. The DuPont Analysis system may be extended to assess ROE. ROE, within the context of the DuPont analysis, is defined as ROI divided by the quotient of total assets divided by shareholder equity.

The initial step of the DuPont Analysis, the ROA determination, requires data on net profit margin and asset turnover. The components of net profit margin are net income and net sales, while the components of total asset

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Equity $ 554mil $ 911mil $1031mil $1209mil $1291mil The ROE step of the DuPont Analysis for Mirage Resorts was calculated for each year during the 1992-1996 period. These ROE data are as follows: 1992: ROE = 4.98% [.0173 x 2.879]. 1993: ROE = 3.18% [.0170 x 1.872]. 1994: ROE = 11.06% [.0695 x 1.592]. 1995: ROE = 13.49% [.0910 x 1.482]. 1996: ROE = 15.95% [.0961 x 1.660]. The most important contributing factor to the steady and substantial increase in ROE from 1994 onward at Mirage Resorts was the improvement in ROA. As the data presented in Table 2 indicate, the leverage factor actually decreased from 1992 through 1995, before increasing in 1996 to a level below that of 1993. As stated in the discussion of ROA, the improvements in ROA were due primarily to improvements in net income at Mirage Resorts, which in turn were due almost entirely to improvements in operating efficiency. From 1994 through 1996, revenues increased by 9.1 percent, while operating costs increased by only 3.8 percent. Cost discipline was evident in all areas of operation. Changes in ROA, stockholders' equity, the leverage factor, and ROE are illustrated graphically. Changes in ROA are presented in Chart 5, while change
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data chart,
Approximate Word count = 2180
Approximate Pages = 9 (250 words per page)

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