Question

Conduct a three factor DuPont analysis for Starbucks and Cheesecake Factory for 2016 and 2017 end-of-fiscal-year results. Use the information from financial statements provided in the section of the 2017 annual report titled: Item 8. Financial Statements and Supplementary Data. Use your analysis to provide a brief (1-2 paragraph) discussion of the change ROE from 2016 to 2017 for each firm and a comparison of the two firms in 2017.

Financials:	SBUX (MM)		CAKE (000)
Year	2017	2016	2017	2016
Net Profit	$2,837.5	$2,908.7	$157,392.0	$139,494.0
Equity	5,457.0	5,890.7	613,530.0	603,207.0
Sales	22,386.8	21,315.9	2,260,502.0	2,275,719.0
Assets	14,365.6	14,312.5	1,293,319.0	1,233,346.0
Ratios:
ROE (NetP/Equity)	0.51997	0.49378	0.25654	0.23125
(1) Net P/Sales	0.12675	0.13646	0.06963	0.06130
(2) Sales/Assets	1.55836	1.48932	1.74783	1.84516
(3) Assets/Equity	2.63251	2.42968	2.10800	2.04465
ROE (1x2x3)	0.51997	0.49378	0.25654	0.23125
Change in ROE %	5.31%		10.93%

Answer 1

THREE FACTOR DUPONT :

Return on Equity = Net income / sales * sales / assets * Assets / equity

So given the analysis, if you see the return on equity for Starbucks for both the years is better than Cheesecake Factory. the reason for that are :

1. Starbuck Net profit margin (net profit / sales ) is way better than Cheesefactory. So although in absolute terms, net profit is less for starbucks but given the level of sales, it is better than cheesecake factory

2. Turnover ratio ( Sales / assets ) of starbucks is slightly lower than  cheesecake factory. But this is getting compensated by the better leverage ratio (assets / equity ) for starbucks

Now if you compare only startbuck performance wrt last year :

1. ROE has improved because of improved leverage and turnover but getting slight hit in terms of profitability

Similarly if we se only cheesecake factory performance:

1. There ROE has also improved because of improvement in profitability and leverage but there is small dip in leverage

let me k now if you have any doubt