DuPont Analysis - Assignment Example

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For Instance, calculation of Microsoft’s ROE without equity multiplier would be 0.2542*0.5037= 12.80%, implying that in 2014, 12.80% of the ROE was generated from sales…
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DuPont Analysis
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DUPONT ANALYSIS INSTRUCTPOR PART DuPont analysis of Microsoft Corporation and Apple Inc Microsoft Corporation Net Profit Margin: Net Income ($22,074, 000,000) ÷ Revenue ($86,833,000,000) = 0.2542
Asset Turnover: Revenue (($86,833,000,000) ÷ Assets ($172,384,000,000) = 0.5037
Equity Multiplier: Assets ($172,384,000,000) ÷ Shareholder’s Equity ($89,784,000,000) = 1.920
ROE = Profit Margin x Total Asset Turnover x Leverage Factor
Therefore, the DuPont Model is computed as [0.2542*0.5037*1.920] = 0.2458, or 24.58%
Apple Inc.
Net Profit Margin: Net Income ($39510) ÷ Revenue ($182795) = 0.2161
Asset Turnover: Revenue (($182795) ÷ Assets ($231839) = 0.7885
Equity Multiplier: Assets ($231839) ÷ Shareholder’s Equity ($111547) = 1.917
ROE = Profit Margin x Total Asset Turnover x Leverage Factor
Therefore, the DuPont Model is computed as [0.2161*0.7885*1.917] = 0.3266, or 32.66%
Apple is more favourable because it has higher percentage of internally-generated sales than Microsoft. For Instance, calculation of Microsoft’s ROE without equity multiplier would be 0.2542*0.5037= 12.80%, implying that in 2014, 12.80% of the ROE was generated from sales whereas 11.78% was from returns due to borrowing of money to finance activities. On the other hand, Apple’s ROE without equity multiplier would be 0.2161*0.7885= 17.04%, implying that in 2014, 17.04% of the ROE was generated from sales whereas 15.62% was from returns due to borrowing of money to finance activities. Apple is able to generate higher profit per dollar than Microsoft.
Common size income statement analysis
Microsoft Corporation 2014
Revenue 100%
Cost of revenue 31.02%
Gross margin 68.98%
Research and development 13.11%
Sales and marketing 18.21%
General and administrative 5.55%
Integration and restructuring 0.15%
Operating income 31.96%
Other income, net 0.07%
Income before taxes 32.03%
Provision for income taxes 6.62%
Net income 25.41%
Apple Inc. 2014
Net sales 100%
Cost of sales 61.41%
Gross margin 38.59%
Research and development 3.30%
Selling, general and administrative 6.56%
Total operating expenses 9.86%
Operating income 28.73%
Other income, net 0.54%
Income before provision for income taxes 29.27%
Provision for income taxes 7.64%
Net income 21.63%
Microsoft is more efficient in its operations that Apple. It has a lower cost of revenue, 31.02% than Apple, 61.41%. Research and development expense of Microsoft for 21014 was 13.11%, almost four times as much as that of Apple. This implies that Microsoft is among the top companies in the world in terms of total research and development. Microsoft had a higher performance than Apple; it had a net margin of 25.41% compared to Apple’s 21.63%.
Microsoft Corporation 2014 annual report
Apple Inc. 2014 annual report Read More
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