You observe that return on equity has changed from 2019 to 2020. You want to analyse the reasons for the change in return on equity to evaluate whether you should invest in the stock. Drawing on your knowledge of Du Pont Analysis, calculate the return on equity and its drivers for 2019 and 2020. Discuss what these numbers indicate to you as a potential investor. You should briefly indicate in your answer which of your calculations is the primary driver behind the change in ROE.
You observe that return on equity has changed from 2019 to 2020. You want to analyse the reasons for the change in return on equity to evaluate whether you should invest in the stock. Drawing on your knowledge of Du Pont Analysis, calculate the return on equity and its drivers for 2019 and 2020. Discuss what these numbers indicate to you as a potential investor. You should briefly indicate in your answer which of your calculations is the primary driver behind the change in ROE.
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
You observe that
Discuss what these numbers indicate to you as a potential investor. You should briefly indicate in your answer which of your calculations is the primary driver behind the change in ROE.
![Sales
Cost of goods sold
Gross Profit
Selling, General and Administrative Expenses
Depreciation Expense
Operating Income
Interest Expense
Earnings before tax
Income tax expense
Net income
NOPAT was 400 in 2020 and 390 in 2019.
Assets
Cash
Income Statement
HEALTHELIXIR Ltd.
Year ended Dec 31, 2020
Balance Sheet
HEALTHELIXIR Ltd.
As at Dec 31, 2020
Accounts receivable
Inventories
Total current assets
Property, plant and equipment
Accumulated depreciation
Total assets
Liabilities and Shareholder's Equity
Accounts Payable
Short-term borrowings
Salaries payable
Total current liabilities
Long-term borrowings
Total liabilities
Share capital, (at $1 per share)
Retained earnings
Total shareholder's equity
Total Liabilities and Shareholder's Equity
in $
'000
in $
'000
2020
40
460
460
960
4860
(660)
5160
2020
3100
2760
(1798) (1573)
1302
1187
350
100
150
600
1000
1600
2800
760
3560
5160
(590)
(140)
572
(100)
472
(142)
330
in $
'000
2019
in $
'000
2019
76
360
300
736
3720
(520)
3936
300
70
130
500
500
1000
2500
436
2936
3936
(510)
(120)
557
(500)
57
(17)
40](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb8284ae0-afe1-4daf-9028-49f3617e0cc3%2F9e589f42-1db9-4af9-a108-cdfba4754e62%2Fwiup12_processed.png&w=3840&q=75)
Transcribed Image Text:Sales
Cost of goods sold
Gross Profit
Selling, General and Administrative Expenses
Depreciation Expense
Operating Income
Interest Expense
Earnings before tax
Income tax expense
Net income
NOPAT was 400 in 2020 and 390 in 2019.
Assets
Cash
Income Statement
HEALTHELIXIR Ltd.
Year ended Dec 31, 2020
Balance Sheet
HEALTHELIXIR Ltd.
As at Dec 31, 2020
Accounts receivable
Inventories
Total current assets
Property, plant and equipment
Accumulated depreciation
Total assets
Liabilities and Shareholder's Equity
Accounts Payable
Short-term borrowings
Salaries payable
Total current liabilities
Long-term borrowings
Total liabilities
Share capital, (at $1 per share)
Retained earnings
Total shareholder's equity
Total Liabilities and Shareholder's Equity
in $
'000
in $
'000
2020
40
460
460
960
4860
(660)
5160
2020
3100
2760
(1798) (1573)
1302
1187
350
100
150
600
1000
1600
2800
760
3560
5160
(590)
(140)
572
(100)
472
(142)
330
in $
'000
2019
in $
'000
2019
76
360
300
736
3720
(520)
3936
300
70
130
500
500
1000
2500
436
2936
3936
(510)
(120)
557
(500)
57
(17)
40
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
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](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Foundations Of Finance](https://www.bartleby.com/isbn_cover_images/9780134897264/9780134897264_smallCoverImage.gif)
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
![Fundamentals of Financial Management (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781337395250/9781337395250_smallCoverImage.gif)
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…](https://www.bartleby.com/isbn_cover_images/9780077861759/9780077861759_smallCoverImage.gif)
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