Du Pont Presentation
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This document presents a Du Pont analysis of Nestle and Cadbury for fiscal year 2007-2008. The Du Pont analysis breaks down return on equity (ROE) into operating profit margin, asset turnover, and financial leverage ratios to examine the drivers of profitability. It finds that Nestle's ROE of 0.35 for 2008 was an increase from 0.21 the prior year, attributed mainly to higher margins and turnover. Net profit margins and turnover ratios increased for Nestle in 2008, while debt ratios decreased, showing better utilization of assets and progress paying off debts.
Du Pont Presentation
- 1. Du Pont AnalysisPresented by: Group 3AArifAditiDeepakRushitSushantShreeramMay 2, 2009
- 2. Du Pont Analysis Analysis based on establishing a relevant financial relationship between components of financial statements. A tool to examine a company's Return on Equity (ROE).
- 3. ROE is broken into two parts: ROA and Equity Multiplier
- 4. ROA is further drilled to Margin Ratios and Turnover ratios.
- 5. Higher the RoE, more favourable is the organization.
- 6. Margin Ratios: This ratio, also known as return as sales (ROS), measures the amount of net profit earned by each dollar of revenue. It is computed as: Profit after Tax / Sales.Turnover Ratios: This is a measure of the efficiency with which assets are utilized. It indicates how many times the assets were turned over in a period. It is computed as: Sales / Total AssetsGearing/Leverage Ratios: This is a measure of profitability from a given level of investment. It is computed as: Total Assets/ Owners Equity This method returns a higher ROI because assets are measured at their gross book value rather than at net book value.
- 7. Du Pont AnalysisTurn Over RatiosLeverage RatiosMargin RatiosSalesNet ProfitTotal AssetsSalesTotal AssetsOwners EquityNet ProfitReturn on Equity = (ROE) Owners Equity
- 8. Du Pont Analysis of Nestle for the FY 2007-08
- 9. Du Pont Analysis of Cadbury for the FY 2007-08
- 10. Comparison b/w Nestle & Cadburys 2008
- 11. ObservationsROOE for the FY 2008 is 0.35; an increase from the last years value of 0.21. Attributed mainly to the increase in margins and turnover.
- 12. Net profit margin increased from 0.11 to 0.17 indicating higher profit for every single dollar revenue it generates. Turnover registered with respect to assets, inventory and cash implying their better utilization. The decrease in debt ratio and debt equity ratio shows that company is working towards paying off its debts.The liquidity ratio has improved showing that the company has improved liquidity.85/2/2009
Editor's Notes
- #6: Intro. About Cadbury All know this world class company. This company was chosen as I cant resist choclates. Therefore, over and above to educate you all, it was to motivate myself .Cadbury is a direct competitor to Nestle and therefore it is relevant for different stake holders to compare these two companies and take necessary decisions.We did a similar exercise on Cadburys as done for Nestle.A point to be noted here is, that the difference in currencies do not matter as the entire Du Pont analysis on the basis of Ratios of internal parameters. Therefore the end result is in the normal number units and currencies are nullified Though different companies, under different geographies might follow different accounting practices, the underlying facts would remain the same. An end user making these analysis needs to keep this in mind and obsrve the financial instruments, by using data at his/her discretion while getting the totals of each parameter. The ratios then obtained are used for comparing between two or more companies.To give an understanding on how comparisons are done, attached is a snap shot of the Du Pont performed on Cadburys which can be looked in detail if necessary. We have used few ratios for the understanding of all on how to make comparisons. The next slide would sure few ratios compared under various categories within DuPont