AllState Trucking Co. has the following ratios compared to its industry for 2007. AllState Trucking Industry Return on sales (i.e. Profit margin) 3% 8% Return on assets 15% 10% Please use Du Pont system of analysis to calculate and explain why the return-on-assets ratio is so much more favorable than the return-on-sales ratio compared to the industry.
AllState Trucking Co. has the following ratios compared to its industry for 2007. AllState Trucking Industry Return on sales (i.e. Profit margin) 3% 8% Return on assets 15% 10% Please use Du Pont system of analysis to calculate and explain why the return-on-assets ratio is so much more favorable than the return-on-sales ratio compared to the industry.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
AllState Trucking Co. has the following ratios compared to its industry for 2007.
|
|
AllState Trucking |
Industry |
|
Return on sales (i.e. Profit margin) |
3% |
8% |
|
|
15% |
10% |
Please use Du Pont system of analysis to calculate and explain why the return-on-assets ratio is so much more favorable than the return-on-sales ratio compared to the industry.
Transcribed Image Text:**AllState Trucking Co. Financial Analysis for 2007**
**Overview:**
The table below compares the financial ratios of AllState Trucking Co. to the industry averages for the year 2007.
| | AllState Trucking | Industry |
|---------------------------|-------------------|----------|
| **Return on sales (Profit margin)** | 3% | 8% |
| **Return on assets** | 15% | 10% |
**Analysis Instructions:**
Utilize the Du Pont system of analysis to calculate and explain why AllState Trucking Co.'s return-on-assets ratio is significantly more favorable than its return-on-sales ratio compared to the industry benchmarks.
**Discussion:**
- The **Return on Sales** (Profit Margin) for AllState Trucking is 3%, which is below the industry average of 8%.
- The **Return on Assets** for AllState Trucking is 15%, which is above the industry average of 10%.
Students should explore how asset efficiency and other operational factors contribute to these variances using the Du Pont analysis. This method breaks down return on assets into more specific components, allowing a detailed understanding of financial performance.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education