Question

DuPont identity.  For the firms in the popup​ window, find the return on equity using the three components of the DuPont​ identity: operating​ efficiency, as measured by the profit margin​ (net income/sales); asset management​ efficiency, as measured by asset turnover​ (sales/total assets); and financial​ leverage, as measured by the equity multiplier​ (total assets/total​ equity).

Financial Information​ ($ in​ millions, 2013)
Company	Sales	Net Income	Total Assets	Liabilities
PepsiCo	​$66,314	​$6,652	​$77,435	​$53,028
​ Coca-Cola	​$46,853	​$8,551	​$990,016	​$56,756
​ McDonald's	​$28,041	​$5,772	​$36,650	​$20,551

1) find the equity of each company. 4 decimals

2) calculate the three components of the DuPont identity 4 decimals

a) profit margin ratio b) asset turnover ratio c) equity multiplier (for all 3)

3) Find ROE for all 3, 4 decimals.

4) Which company is the most operationally efficient, management efficient, and best for the shareholders?

Answer 1

1) Equity of Pepsi Co = Total assets - Total Liabilities = 77435 - 53028 = 24407
Equity of Cocal Cola = 990016 - 56756 = 933260
Equity of McDonalds's = 36650 - 20551 = 16099

2) Profit Margin of Pepsis Co = Net income/Sales = 6652/66314 = 0.1003
Asset Turnover ratio = Sales/Total Assets = 66314/ 77435 = 0.8564
Equity Multiple = Total assets/Equity = 77435/24407 = 3.1727

Profit Margin of Coca Cola = Net income/Sales =8551/ 46853 = 0.1825
Asset Turnover ratio = Sales/Total Assets = 46853/990016 = 0.0473
Equity Multiple = Total assets/Equity = 990016/ 933260 = 1.0608

Profit Margin of Mcdonald = Net income/Sales =5772/28041 = 0.2058
Asset Turnover ratio = Sales/Total Assets = 28041/36650 = 0.7651
Equity Multiple = Total assets/Equity = 36650/16099 = 2.2765

3) ROE of Pepsi Co = Net income/Equity = 6652/24407 = 0.2725
ROE of Coca Cola = Net income/Equity = 8551/933260 = 0.0092
ROE of Mcdonald = Net income/Equity = 5772/16099 = 0.3585

4) Most operationally efficient is Pepsi Co because asset turnover is highest.
Most management efficient is Mcdonald
Best of Shareholders is Mcdonalds ROE is highest for Mcdonald.

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