Dupont Model Essay
Alan Cardoso
Assignment 5-A: DuPont Model Analysis for Netflix
Required:
a. For each ratio in the Basic Dupont Model and the Advanced Dupont Model, provide an interpretation, i.e., are they favorable or unfavorable, is the 5-year trend positive or negative? Note that our reclassifications in 2008 and 2009 do not have an effect on the Dupont ratios. b. Are any of these ratios meaningless because of factors such as negative amounts, denominator close to zero, accounting distortions? c. Are there any factors that make you think the 2008 or 2009 ratio is an aberration and that the future may be significantly different?
Guidance: To determine whether the ratios are favorable or unfavorable, we need to have some benchmarks for …show more content…
It appears to be favorable because its contribuiting to a larger ROE than previous years. Its an indicator of net financial obligations divided by total debt. Having a healthy portion of debt is good for the company to grow and shows to the investor that the company is active in trying to improve profits instead of sitting on cash.
Net Borrowing Cost –A low financiaing expense compared to average net financial obligations gives a company more room to for investing activities. It gives an indication to how the company is managing its obligations and if it can handle additional projects It appears to be favorable for netflix since its decreased the past 2 years
Spread –The spread for netflix has nearly doubled since last year and is a good indicator that they have more operating margin and a healthy sales/asset turnover in order for investing activities or handing back a dividend
Financial leverage-Leverage is a good indicator of credit risk, especially the risk of defaluting on loans etc. For netflix, It appears to have increased slightly but this is explainable because netflix needs to invest in more technological savvy delivery methods to its
Assignment 5-A: DuPont Model Analysis for Netflix
Required:
a. For each ratio in the Basic Dupont Model and the Advanced Dupont Model, provide an interpretation, i.e., are they favorable or unfavorable, is the 5-year trend positive or negative? Note that our reclassifications in 2008 and 2009 do not have an effect on the Dupont ratios. b. Are any of these ratios meaningless because of factors such as negative amounts, denominator close to zero, accounting distortions? c. Are there any factors that make you think the 2008 or 2009 ratio is an aberration and that the future may be significantly different?
Guidance: To determine whether the ratios are favorable or unfavorable, we need to have some benchmarks for …show more content…
It appears to be favorable because its contribuiting to a larger ROE than previous years. Its an indicator of net financial obligations divided by total debt. Having a healthy portion of debt is good for the company to grow and shows to the investor that the company is active in trying to improve profits instead of sitting on cash.
Net Borrowing Cost –A low financiaing expense compared to average net financial obligations gives a company more room to for investing activities. It gives an indication to how the company is managing its obligations and if it can handle additional projects It appears to be favorable for netflix since its decreased the past 2 years
Spread –The spread for netflix has nearly doubled since last year and is a good indicator that they have more operating margin and a healthy sales/asset turnover in order for investing activities or handing back a dividend
Financial leverage-Leverage is a good indicator of credit risk, especially the risk of defaluting on loans etc. For netflix, It appears to have increased slightly but this is explainable because netflix needs to invest in more technological savvy delivery methods to its