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You are assessing the performance of a retail company, Alpha. The income statement and balance sheet for Alpha at the end of 2019 and 2020 are presented below. income statement 2020 2019 revenue 750 720 cost of goods sold 400 450 depreciation 50 50 operating profit 300 220 interest expenses 30 25 profit before tax 270 195 tax expenses 90 70 net profit 180 125       balance sheet 2020 2019 assets     non current asset 2,000 1,800 accumulate depreciation 500 450 total non current asset 1,500 1,350 current asset     inventory 400 550 trade receivables 600 550 bank 200 250 total current asset 1,200 1,350 total asset 2,700 2,700 equity and liabilities     equity     contributed equity 1,000 1,000 accumulated retained earnings 500 450 total equity 1,500 1,450 liabilities     non current liabilities     long term loans 500 400 current liabilities     trade payables 550 750 other payables 150 100 total current liabilities 700 850 total liabilities 1,200 1,250 toal equity and liabilities 2,700 2,700 Using the DuPont Analysis technique, discuss the change in Return on Equity (ROE) between 2020 and 2019

You are assessing the performance of a retail company, Alpha. The income statement and balance sheet for Alpha at the end of 2019 and 2020 are presented below. income statement 2020 2019 revenue 750 720 cost of goods sold 400 450 depreciation 50 50 operating profit 300 220 interest expenses 30 25 profit before tax 270 195 tax expenses 90 70 net profit 180 125       balance sheet 2020 2019 assets     non current asset 2,000 1,800 accumulate depreciation 500 450 total non current asset 1,500 1,350 current asset     inventory 400 550 trade receivables 600 550 bank 200 250 total current asset 1,200 1,350 total asset 2,700 2,700 equity and liabilities     equity     contributed equity 1,000 1,000 accumulated retained earnings 500 450 total equity 1,500 1,450 liabilities     non current liabilities     long term loans 500 400 current liabilities     trade payables 550 750 other payables 150 100 total current liabilities 700 850 total liabilities 1,200 1,250 toal equity and liabilities 2,700 2,700 Using the DuPont Analysis technique, discuss the change in Return on Equity (ROE) between 2020 and 2019

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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You are assessing the performance of a retail company, Alpha. The income statement and balance
sheet for Alpha at the end of 2019 and 2020 are presented below.

income statement 2020 2019
revenue 750 720
cost of goods sold 400 450
depreciation 50 50
operating profit 300 220
interest expenses 30 25
profit before tax 270 195
tax expenses 90 70
net profit 180 125
     
balance sheet 2020 2019
assets    
non current asset 2,000 1,800
accumulate depreciation 500 450
total non current asset 1,500 1,350
current asset    
inventory 400 550
trade receivables 600 550
bank 200 250
total current asset 1,200 1,350
total asset 2,700 2,700
equity and liabilities    
equity    
contributed equity 1,000 1,000
accumulated retained earnings 500 450
total equity 1,500 1,450
liabilities    
non current liabilities    
long term loans 500 400
current liabilities    
trade payables 550 750
other payables 150 100
total current liabilities 700 850
total liabilities 1,200 1,250
toal equity and liabilities 2,700 2,700

Using the DuPont Analysis technique, discuss the change in Return on Equity (ROE) between 2020
and 2019

Expert Solution
Step 1

Answer:- 

DuPont Analysis meaning:- The DuPont Corporation first popularized the DuPont analysis paradigm, which is now frequently used to analyze the operational effectiveness of two similar companies. DuPont analysis is a practical method for breaking down the various factors that affect return on equity (ROE).

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