Assignment - Assignment#4 Finance 550 Strayer University...

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Assignment #4 Finance 550 Strayer University Finance 550 Assignment #4 G Francis T Instructor: Gary Bliss 05/25/11 1. Using the DuPont Analysis, compare the returns on equity for the following companies: CVS Caremark, Chevron, and Cisco Systems. | |Amts in millions | | | |Year 2010 |CVS Caremark |Chevron |Cisco Systems | |Revenues |$96,413 |$204,928 |$40,040 | |Net income |$3,424 |$19,024 |$7,767 | |Assets |$62,169 |$184,769 |$81,130 | |Shareholders' Equity |$37,700 |$105,081 |$44,267 | | | | | | |Net profit margin |=3424/96413 |=19024/204928 |=7767/40040 | | | 0.0355 |0.092832605 |0.193981019 | | |3.6% |9.28% |19.4% | | | | | |
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|Asset turnover |=96413/62169 |=204928/184769 |=40040/81130 | | |1.550821149 |1.1091038 |0.493528904 | | | | | | |Equity multiplier |=62169/37700 |=184769/105081 |=81130/44267 | | |1.649045093 |1.758348322 |1.832742223 | | | | | | |ROE |=.0355*1.551*1.649 |=.0928*1.109*1.758 |=.194*.4935*1.8327 | | |0.090794765 |0.180924922 |0.175460865 | | |9.1% |18.1% |17.5% | |No equity multiplier |=0.0355*1.551 |=0.0928*1.109 |=0.194*0.4935 | | |0.0550605 |0.1029152 |0.095739 | | |5.50% |10.30% |9.60% | | |3.6% |7.8% |7.9% | From the analysis above it would seem that from the net profit margin, Cisco Systems is the better company and is the most profitable but if you take a look at the return on equity, even though Chevron has half the profit margin that Cisco does, it has a higher return on equity than Cisco Systems. Out of the three companies, I would say that Chevron seems to be the more productive and better choice. If you were to take out the equity multiplier to see how much Chevron or Cisco would earn if they were without any debt, you will see that for Chevron 10.3% of the return on equity was due to profit margins and sales, while 7.8% was due to returns earned on the debt from the business. For Cisco Systems, you will see that 9.6% of the return on equity was due to profit margins and sales, while 7.9% was due to returns earned on the debt from the business. Even though Cisco Systems had the higher profit margin, they had lower asset turnover. For all three stocks, it doesn’t really seem that they are risky since most of their return on equity is derived from the profit margin and the asset turnover. 2. You are to evaluate the “Personal Products” industry in terms of the five factors that determine an industry’s intensity of competition. Based on this analysis, what are your expectations about the
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industry’s profitability in the short run (1 or 2 years) and the long run (5-10 years)? You are to use at least three references and these references must be properly cited. For your convenience, Proctor and Gamble is a company that is an example of the personal products industry.
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This note was uploaded on 01/26/2012 for the course BUSINESS BUS 520 taught by Professor Dr.mohamed during the Spring '11 term at Strayer.

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Assignment - Assignment#4 Finance 550 Strayer University...

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