Question:Conduct a Dupont analysis of the firm and indicate what area of operations is most in need of improvement. -Free Course Hero Question Answer.

Question Description: Conduct a Dupont analysis of the firm and indicate what area of operations is most in need of improvement.

Kirkland Industries Wilfred Kirkland. the CEO. founded Kirkland Industries thirty years ago. opening his first location just blocks from his childhood home in Weslaco. He believes it’s time for him to retire and leave the day-to-day operations to a younger person with energy and vision to take the company into the next few years. Despite his desire to leave the CEO position, he will stay on as Chairman of the board of directors and he forecasts that the market is perfect for signific ant expansion. Aflerall. according to his wife, “we haven’t taken a real vacation in years” and she would love to travel and explore distant parts of the globe while they’re in good health. She knows that her husband will never leave the company for an extended period if he remains as CEO. M’r. Kirkland’s two children have no desire to run the company. His daughter. Maribel. has her eyes fixed on being a fashion model social media influencer and spends all her time, and much of his money, hob-knobbing with her “party” friends. His son. Jonathan. is laser-focused on pursuing a medical career and is only one year away from completing his MD degree at UTRGV Medical School and wants to go directly to New York to do his residency. Upon completion. he hopes to set up practice in the Rio Grande Valley. primarily because his fiance is from the Valley and would love to remain close to her parents. Despite many conversations between father and son. Jonathan cannot be convinced to change course. Jonathan’s only connection to the firm is the 50.000 shares he was given as a gift for getting accepted to medical school when the shares were worth $5.75 per share. After carefiil thought. Wilfred decided to recruit a new CEO. Conventional wisdom dictates that he should hire a seasoned veteran for the job. but his instincts told him that a new MBA graduate would be best as s.-‘he would be “hungry" to succeed and would be willing to look at things from a new perspective. His instincts have served him well over the years so he decided to advertise the position to new MBA graduates across the country but would prefer someone from UTRGV as graduates are ah’eady familiar with the unique Valley culture. lvfr. Kirkland decided that the best person would be the individual who could thoroughly evaluate the firm’s performance and provide sound recommendations for the fnm’s future expansion. You’re convinced that you have the skills, drive. and tenacity to do a great job. so you decided to apply for the job and was given financial information on the company. You were also told that you could get any additional information directly from the company. In planning its operations for the next year. Kirkland industries wants to open three more locations and expects overall revenues to grow by 30%. The fn’m had purchased land in Edinburg. Rio Grande City. Brownsville. Pharr, and Zapata in anticipation of future expansion. So far. the firm is in receipt of one project analysis that indicates that a Pharr location would bring in sales of $2.7 million monthly while reducing $50.000 in sales from the McAllen location monthly. The new installation in Pharr would cost $5.5 million to construct and would need $250,000 in working capital. In your review of the financial information. you discovered that the fn’m has two sets of bonds outstanding; a 25-year zero-coupon bond that was issued 10 years ago and a traditional corporate bond with a $10.000 face value issued five years ago that pays $131.25 coupons quarterly. The stock price had fluctuated from a high of $32.50 pre-pandemic to a pandemic low of $22.75 but

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Course Hero Answer & Explanation:

Net Income Margin is calculated as Net Income / Sales ($5,430,000,000 / $80,522,000,000), which equals 0.067 or 6.7 percent.

Sales / Total Assets equals asset turnover.

= $247,872 billion / $80,522 billion

= 0.325%, or 32.5%

Total Assets / Total Equity is the equity multiplier.

= $76,165 billion / $247,872 billion

= 3.25

Net income divided by total equity is the measure of return on equity.

$5,430 billion divided by $76,165 billion.

= 0.071, which is 7.1%

According to the Dupont research, the company has a low return on equity when compared to its net income margin and asset turnover. This implies that there is room for improvement in the way the company uses its assets and equity.

Step-by-step explanation

Net Income Margin = Net Income / Sales = $5,430 million / $80,522 million = 0.067 or 6.7 percent

Asset Turnover is Calculated by Dividing Sales by Total Assets.

= $80,522 million / $247,872 million

= 0.325 or 32.5 percent

Equity Multiplier = Total Assets / Total Equity

= $247,872 million / $76,165 million

= 3.25

Formula for calculating return on equity: net income divided by total equity

= $5,430 million / $76,165 million

= 0.071 or 7.1 percent

According to the findings of the Dupont research, the rate of return on equity at the company is low in comparison to its net income margin and asset turnover. This leads one to believe that the operations of the company could be improved in terms of how effectively they utilize their assets and equity.

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