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 multiplied by 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 earns on each dollar of sales, the greater will be the ROI.
b. If we divide users of financial ratios into-short-term lenders, long-term lenders, and stockholders, which ratios would each group be most interested in, and for what reasons.
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 ROE ratio would be of most interest to stock holders because this ratio reflects the assets accessible to stockholders. Long-term lenders will be more interested in ROI because this ratio is an indicator of the long-term viability of the company. Short-term lenders will be more interested in ROA because the combination of net profits and asset turnover provide an indication a companyÆs short-term liquidity.
Cats and Dogs, Inc. sells one of its products for $8 per unit. In connection with that product, it has the following costs (not reproduced here). Separate the expenses between fixed and variable cost per unit. Using the information and the sales price per unit, compute the breakeven point.
Fixed Costs Variable Costs
Rent $ 1,200 Factory Labor: $1.50 per unit
Executive Raw Materials:
Salaries $112,000 $0.70 per unit
The breakeven equation for the determination of the breakeven point stated in monetary values uses the same data that are used in the breakeven equation for the determina...