Operations Management homework help
Return on Equity (ROE): The Dupont Formula
The calculation of the Return on Equity (ROE) is an internal measure of the efficiency of the management of the company’s assets. ROE is basically the dollar return on sales (net income/net sales) times the asset turnover ratio (net sales/total assets). An increasing ROE is an indicator of continuing growth in profitability and the improving efficiency of the management of company assets. This is critical because an improving ROE tends to drive improvement in stock price. Operations Management homework help
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The Dupont formula helps decompose the different drivers of return on equity (ROE). It allows management to go deeper in their analysis of ROI by highlighting both profit and loss performance (which tends to be the focal point of management) and balance sheet management (which tends to be neglected). It helps investors to focus on the key metrics of financial performance individually.
The Dupont Formula analysis of ROI is most valuable when performing comparative analysis of a company’s performance from one period to the next.
where:
Net Profit Margin = Net Income / Revenue
AT = Asset turnover
Asset Turnover = Sales / Average Total Assets
EM=Equity multiplier
Equity Multiplier = Average Total Assets / Average Shareholders’ Equity. Operations Management homework help
Reference:
Parrino, Kidwell, Bates. (2011). Fundamentals of Corporate Finance, Chapter 4, Wiley Textbooks. ISBN: 118213750
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MBA 670 Project 3
Individual Analysis
[Name]
[Team Name]
[Product Name or Names]
[Market Country or Countries]
[Course Name]
[Course Section Number]
[Instructor]
[Date Submitted]
Project 3 Analysis Directions: Write your answers below each question. Please do not delete the questions.
- What strategy were you implementing? Give examples of any three decisions over the four rounds that were consciously driven by your chosen strategy. Explain. Operations Management homework help
- Which country and customer(s) did you target with your product (high tech, low tech, or both)? Why? Give examples of two decisions in R&D and two decisions in marketing that you implemented over the four rounds to enable your desired targeting.
- In the market segment that you were focused on, what do your customers want most? Did your market share for the country where your products are sold change over the four rounds? Comment on how it changed and why.
- Did you meet your potential demand in Round 1? Round 2? Round 3? Round 4? Hint: Look at Section 3 &/or 4 of the report (marketing). If you observed a stockout (inability to meet demand) in one or more rounds, pinpoint the reasons behind each instance.
- Based on Section 1 (High Level Overview) of the Round 1 Report, how did your sales results compare to those of the other five teams? If your sales results were extreme (top two or bottom two among the six teams), explain what other than sheer luck, caused that to happen. In other words, what decisions in Round 1 might have caused your sales to excel or suffer in comparison to its competition? Operations Management homework help
- Calculate ROE for all four rounds, using Dupont Formula ROE [Note: In the DuPont equation, ROE is equal to profit margin multiplied by asset turnover multiplied by financial leverage. Under DuPont analysis, return on equity is equal to the profit margin multiplied by asset turnover multiplied by financial leverage.]
- Did you need an emergency loan in any of the four rounds? If so, why? If you did not need an emergency loan in any of the four rounds, explain the decisions that you made to ensure that your company would not need an emergency loan to survive.
- Explain your capacity decisions, including whether or not to use a second shift in each round. Compare the available plant capacity in each round (first and second shift) versus the number of units produced. Was there idle capacity in any round? Is it possible that you could you have used capacity more efficiently while increasing your plant utilization? Explain why or why not.
- See Section 10 (Finance) of the Round 4 report. How did your revenue grow over the four rounds? Why? How did your net income grow over the four rounds? Why? How did your share price/market cap grow over the four rounds? Why? Operations Management homework help
- Did your team’s decisions in Rounds 1–4 always align with the chosen strategy? If you found yourself deviating from your strategy, explain why. In hindsight, what decisions would you have made differently? Explain.
