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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.
PART 2
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%.
References
Microsoft Corporation 2014 annual report
http://www.microsoft.com/investor/reports/ar14/index.html
Apple Inc. 2014 annual report
http://investor.apple.com/secfiling.cfm?filingid=1193125-14-383437&cik= Read More
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