Dupont Model Analysis
DuPont Model Analysis: Assignment 1
DuPont Model Analysis: Assignment 1
Name
University of Maryland University College
September 23, 2009
TABLE OF CONTENTS
Introduction 3
Analysis 3
Recommendations 6
References 8
Introduction
The DuPont Method is a financial method that was first introduced by the DuPont Company in the 1970’s (Brooks, Callahan & Stetz, 2007). It is used to highlight how a company’s finances affect its return on investment. This assignment uses the DuPont Method to analyze the finances of Dick’s Sporting Goods Company. In addition, the results of the analysis are compared to imaginary industry standards. Based on the comparison, recommendations will be provided to ensure that Dick’s Sporting Goods remains competitive it its market.
Analysis
Financial records for this analysis were taken from the 2008 annual report for Dick’s Sporting Goods. In analyzing the records in accordance to the first level of the DuPont Method, it could be mistakenly agreed upon that the sporting goods company is in good financial shape because its return on equity and capital are both significantly higher than that of industry standards. However, after further analysis using the DuPont Method, it is clear that compared to industry standards, a problem with Dick’s Sporting Goods does exist. The net profit margin, which is a company’s percentage of each dollar that remains from a sale after all costs and taxes are paid, is roughly .67% lower that the standard (Brooks, Callahan & Stetz, 2007). At this point one could make the assumption that to resolve this issue the company could raise the price of its products to return a large sale, but to get to the root of the problem, further investigating is needed. Calculating the finances of Dick’s Sporting Goods according to the DuPont Method further revealed that their operating profit margin and their tax rate are both below industry standards. This is significant because these
DuPont Model Analysis: Assignment 1
Name
University of Maryland University College
September 23, 2009
TABLE OF CONTENTS
Introduction 3
Analysis 3
Recommendations 6
References 8
Introduction
The DuPont Method is a financial method that was first introduced by the DuPont Company in the 1970’s (Brooks, Callahan & Stetz, 2007). It is used to highlight how a company’s finances affect its return on investment. This assignment uses the DuPont Method to analyze the finances of Dick’s Sporting Goods Company. In addition, the results of the analysis are compared to imaginary industry standards. Based on the comparison, recommendations will be provided to ensure that Dick’s Sporting Goods remains competitive it its market.
Analysis
Financial records for this analysis were taken from the 2008 annual report for Dick’s Sporting Goods. In analyzing the records in accordance to the first level of the DuPont Method, it could be mistakenly agreed upon that the sporting goods company is in good financial shape because its return on equity and capital are both significantly higher than that of industry standards. However, after further analysis using the DuPont Method, it is clear that compared to industry standards, a problem with Dick’s Sporting Goods does exist. The net profit margin, which is a company’s percentage of each dollar that remains from a sale after all costs and taxes are paid, is roughly .67% lower that the standard (Brooks, Callahan & Stetz, 2007). At this point one could make the assumption that to resolve this issue the company could raise the price of its products to return a large sale, but to get to the root of the problem, further investigating is needed. Calculating the finances of Dick’s Sporting Goods according to the DuPont Method further revealed that their operating profit margin and their tax rate are both below industry standards. This is significant because these
References: Brooks, L.M., Callahan, K.R., & Stetz, G.S. (2007). Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability. Hobroken, NJ: John Wiley & Sons, Inc. Dick’s Sporting Goods Company.(2008). 2008 Annual Report. Retrieved September 14, 2009 from http://phx.corporate-ir.net/phoenix.zhtml?c=132215&p=irol-irhome