Lesson 8 of 9 · All lessons in this module
  1. The analysis process and ratio basics
  2. Common-size, trend analysis and graphs
  3. Activity ratiosVideo lesson
  4. Liquidity ratios and the cash conversion cycleVideo lesson
  5. Solvency ratiosVideo lesson
  6. Profitability ratiosVideo lesson
  7. Integrated ratio analysis and DuPontVideo lesson
  8. Integrated cases: a five-year scorecard, a peer comparison and a DuPont trend
  9. Industry-specific ratios and forecasting

Lesson 8 of 9 · 17 min

Integrated cases: a five-year scorecard, a peer comparison and a DuPont trend

An evaluation question gives you a summary table, expects you to compute a handful of ratios for the first and last year, and then asks which conclusion is valid: efficiency, profitability, liquidity and solvency each need their own ratio and their own direction.

In short

  • Compute the same ratios for the first and last year, using average balances where the definition says so, and read the direction before the level.
  • Keep the four families apart: turnover for efficiency, margins for profitability, current ratio for liquidity, coverage and debt ratios for solvency.
  • Use ROE = net margin × asset turnover × leverage to say why one company's ROE is higher; one factor can offset another.
  • In a five-factor trend, a rising tax burden means a lower tax rate and a falling interest burden means interest is taking a larger bite.
  • A flat DSO can hide credit deterioration: check the ageing of receivables and the allowance as a percentage of gross receivables.

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