After this video, learners will be able to use the DuPont framework to analyze and compare two companies profitability.
- Okay, we looked at Uncertain and Benchmark, … now let's look at a real company, let's look at Ford, … and we're going to compare Ford and General Motors. … In 2014 Ford's return on equity was 12.9%. … Again, that's in the good range. … But now let's compare their 2014 performance … to their 2013 performance. … We see in 2013 their return on equity was 27.6%. … Now what's the obvious question? … Why? … Why did it drop from 27.6% down to 12.9%? … Well we can answer that question … again by using the DuPont framework. … As you can see here we have the … DuPont framework for 2014 and 2013. … We've got Ford's performance broken down … by profitability, efficiency, and leverage. … Let's just take a look at these comparisons … and see what we can conclude. … First of all let's look at leverage. … In 2013 their leverage was seven point seven. … In other words they had seven point seven dollars … in assets for every dollar's worth of equity. … In 2014 that had increased to eight point 4. … In other words the company had borrowed more money …
- Describe how decision-makers use accounting in a business.
- Recognize limitations in financial statement analysis.
- Relate the purpose of financial ratio analysis.
- Determine the primary reason for managing cash through the operating cycle.
- Define the role of efficiency in creating budgets.
- Identify differences between federal income tax and other taxes, such as state sales tax.