In: Accounting
Analyze Deere & Company
Deere & Company (DE) manufactures and distributes farm and construction machinery that it sells around the world. In addition to its manufacturing operations, Deere’s credit division loans money to customers to finance the purchase of their farm and construction equipment.
The following information is available for three recent years (in millions except per-share amounts):
Year 3 | Year 2 | Year 1 | ||||
Net income (loss) | $1,523.9 | $1,940.0 | $3,161.7 | |||
Preferred dividends | $ 0.00 | $ 0.00 | $ 0.00 | |||
Interest expense | $ 763.7 | $ 680.0 | $ 664.0 | |||
Shares outstanding for computing earnings per share | 315 | 334 | 363 | |||
Cash dividend per share | $ 2.40 | $ 2.40 | $ 2.22 | |||
Average total assets | $ 57,965 | $ 59,642 | $ 60,429 | |||
Average stockholders’ equity | $ 6,644 | $ 7,912 | $ 9,667 | |||
Average stock price per share | $ 92.03 | $ 81.10 | $ 85.58 |
1. Calculate the following ratios for each year (Round ratios and percentages to one decimal place, except for per-share amounts. Round per-share amounts to two decimal places.):
Year 3 | Year 2 | Year 1 | ||||||||
a. | Return on total assets | % | % | % | ||||||
b. | Return on stockholders' equity | % | % | % | ||||||
c. | Earnings per share | $ | $ | $ | ||||||
d. | Dividend yield | % | % | % | ||||||
e. | Price-earnings ratio |
2. Based on these data, which of the following statements is correct?
Question 1
Return on Asset = Net Income / Average Total Assets * 100
Particulars | Year 3 | Year 2 | Year 1 |
Net Income | 1,523.90 | 1,940 | 3,161.70 |
÷ Average Total Assets | 57,965 | 59,642 | 60,429 |
* 100 | 100 | 100 | 100 |
Return on Assets in % | 2.6% | 3.3% | 5.2% |
Return on Stockholders Equity = Net Income / Average Stockholders Equity * 100
Particulars | Year 3 | Year 2 | Year 1 |
Net Income | 1,523.90 | 1,940 | 3,161.70 |
÷ Average Stockholders Equity | 6,644 | 7,912 | 9,667 |
* 100 | 100 | 100 | 100 |
Return on Stockholders Equity | 22.9% | 24.5% |
32.7% |
Earnings per Share = Net Income attributable to Common Stockholders / Weighted Average Shares
Particulars | Year 3 | Year 2 | Year 1 |
Net Income attributable to Common Stockholders | 1,523.90 | 1,940 | 3,161.70 |
÷ Weighted Average Outstanding Shares | 315 | 334 | 363 |
Earnings per share in $ | 4.84 | 5.81 | 8.71 |
As Preferred Dividends are $ 0 in all three years then Neet Income will be equal to Net Income attributable to Common Stockholders.
Dividend Yield = Cash Dividend per Share / Average Stock per Share * 100
Particulars | Year 3 | Year 2 | Year 1 |
Cash Dividend per Share | 2.40 | 2.40 | 2.22 |
÷ Average Stock Price per Share | 92.03 | 81.10 | 85.58 |
* 100 | 100 | 100 | 100 |
Dividend Yield in % | 2.6% | 2.9% |
2.6% |
Price Earnings Ratio = Average Stock Price per Share/ Earnings per Share
Particulars | Year 3 | Year 2 | Year 1 |
Average Stock Price per Share | 92.03 | 81.10 | 85.58 |
÷ Earnings per Share | 4.84 | 5.81 | 8.71 |
Price Earnings Ratio | 19 Times | 13.9 Times |
9.8 Times |
Question 2
Option 4 is the Correct Answer.
Price Earnings Ratio has improved during the three year period as share price has increased at a faster pace than earnings.