Nomenclature-functional group priority

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Nomenclature-functional group priority 5. TCO G) If you were a manager of a company, which of the three right side components of the DuPont Identity would you want to increase and which would you w... ant to decrease, other things being equal? Give a specific example for how to do that for each of the three. (Points : 20) The DuPont Identity measures the company’s ROE in terms of its profitability, asset efficiency, and leverage. The model helps investors compare similar companies like these with similar ratios. Investors can then apply perceived risks with each company's business model. Based on these three performances measures i.e. Profit Margin, Total Asset Turnover and Financial Leverage, the model concludes that a company can raise its ROE by maintaining a high profit margin, increasing asset turnover, or leveraging assets more effectively. In details, net profit margin can be used to margin a company's overall profitability. Besides, the firm’s asset turnover is used to identify how efficiently the firm is utilizing its assets to generate sales. The term equity multiplier indicates the value of assets held per dollar of shareholder equity. The right side components of the DuPont Identity that can be increased are Net Income and Sales. The inventory and account receivable can be This study source was downloaded by 100000815948112 from CourseHero.com on 04-28-2021 05:19:22 GMT -05:00 reduced which can help the current assets position and in turn reduces total assets, which then improves total asset turnover. Hence, decreasing the inefficiencies in asset utilization and inventory holding will improve the ROE. The management can use this formula to pinpoint the problem area whether it is a lower profit margin, asset turnover, or poor financial leveraging if investors are unsatisfied with a low ROE. [Show More]

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