35、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.

An analyst gathered the following information (U.S. $ millions) for two companies operating in the same industry during the same period:             

Butler Enterprises Annandale Corporation

Net sales         $120  $300

Total assets      $70    $140

Total liabilities         $25    $40

If both companies achieved a return on equity of 15 percent for the period, the company most likely to have the higher net profit margin and higher financial leverage multiplier, respectively, is:

      Higher net profit margin       Higher financial leverage multiplier

A.   Butler            Butler

B.    Butler            Annandale

C.   Annandale     Butler

D.   Annandale     Annandale

A. Answer A

B. Answer B

C. Answer C

D. Answer D

答案和详解如下：

35、Correct answer is A

"Financial Analysis Techniques," Thomas R. Robinson, Hennie van Greuning, Elaine Henry, and Michael A. Broihahn

2008 Modular Level I, Vol. 3, pp. 605-606

2008 Modular Level I, Vol. 4, pp. 136-143

Study Sessions 10-41-f, 11-47-a

demonstrate the application of Du Pont analysis (the decomposition of return on equity);

calculate, interpret, and discuss the Du Pont expression and extended Du Pont expression for a company's return on equity and demonstrate its use in corporate analysis

The Du Pont system can be used to break down ROE into three components: profit margin, total asset turnover, and financial leverage multiplier.

The total asset turnover is 300 / 140 = 2.14 for Annandale and 120 / 70 = 1.71 for Butler. The financial leverage multiplier is 140 / 100 = 1.4 for Annandale and 70 / 45 = 1.56 for Butler.

For Annandale, 15% = (net profit margin)(2.14)(1.4), so the net profit margin is 5.0%.

For Butler, 15% = (net profit margin)(1.71)(1.56), so the net profit margin is 5.6%.

(The net profit margin could also be computed by computing net income for each company. For Annandale, 15% = net income/100, so net income is $15. 15/300 = 5.0%. For Butler 15% = net income/45, so net income is 6.75. 6.75/120 = 5.6%.)

答案和详解如下：

35、Correct answer is A

"Financial Analysis Techniques," Thomas R. Robinson, Hennie van Greuning, Elaine Henry, and Michael A. Broihahn

2008 Modular Level I, Vol. 3, pp. 605-606

2008 Modular Level I, Vol. 4, pp. 136-143

Study Sessions 10-41-f, 11-47-a

demonstrate the application of Du Pont analysis (the decomposition of return on equity);

calculate, interpret, and discuss the Du Pont expression and extended Du Pont expression for a company's return on equity and demonstrate its use in corporate analysis

The Du Pont system can be used to break down ROE into three components: profit margin, total asset turnover, and financial leverage multiplier.

The total asset turnover is 300 / 140 = 2.14 for Annandale and 120 / 70 = 1.71 for Butler. The financial leverage multiplier is 140 / 100 = 1.4 for Annandale and 70 / 45 = 1.56 for Butler.

For Annandale, 15% = (net profit margin)(2.14)(1.4), so the net profit margin is 5.0%.

For Butler, 15% = (net profit margin)(1.71)(1.56), so the net profit margin is 5.6%.

(The net profit margin could also be computed by computing net income for each company. For Annandale, 15% = net income/100, so net income is $15. 15/300 = 5.0%. For Butler 15% = net income/45, so net income is 6.75. 6.75/120 = 5.6%.)

c

A