Assignment
DuPont Analysis is a quick and relatively easy way to assess the overall health of a firm in four simple ratios. In this assignment, you will perform DuPont Analysis on Google Inc. and its closest competitor, Yahoo Inc.
DuPont Analysis consists of breaking down return on equity (ROE) into essential parts as follows:
ROE = PM (profit margin) * AT (asset turnover) * EM (equity multiplier)
ROE = net income/total equity; this ratio is very important to stockholders.
PM = net income/total revenue; it tells you how effectively costs were controlled by management.
AT = total revenue/total assets; it tells you how efficiently assets are being used to generate revenues.
EM = total assets/total equity; it tells you how reliant the firm is on debt.
Directions:
1) You will report the ratios and your analysis in a Word document.
2) In your Word document, set up a table that organizes the four Google ratios for each of the past three years and the Yahoo ratios for the most recent year only and then analyze your results.
- To assess the health of Google, you will find the 2014 financial statement from Google Inc. online. You might try the website SEC gov, for example.
- Compute all parts of the DuPont Ratio for the past three years. Then, compare those numbers to the 2014 year ratios of one of the company's closest competitors, Yahoo Inc.
3) Your analysis should include a discussion of the strengths or weaknesses revealed in each ratio.
4) All four ratios should be discussed.
5) Your document should be 2-4 pages long. Your paper should conform to CSU-Global Guide to APA format.
Note: Financial information and competitor information is relatively easy to find. You can use Finance.yahoo and type in a company's name in the box just before Get Quotes. Once you have the firm's page, look on the left side of the screen (in a blue box) and find the firm's Balance Sheet and Income Statement links. You can also find the firm's closest competitor and follow the same process in getting their financials.