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Using the extended DuPont equation to provide a summary

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Dear Sir/Madame,

I would like to request assistance analyzing the financials of Ford Motor Company.

I need to have the results in excel so I may compare them to my answers.

The three questions are as follows:
1) Using the extended DuPont equation to provide a summary and overview of Ford's Financial Condition. (From Profit Margin, Total Asset Turnover, and Equity Multiplier)
2) Calculate the cost of each capital component, after-tax cost of debt, cost of preferred, and cost of equity with the DCF method and CAPM Method.
3) Estimate the Company's WACC.

** See ATTACHED file(s) for complete details **

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Solution Preview

Please see attached file for answers.


The DuPont equation can be broken down into its three components:
1. Profit margin = Net Income / Total Sales
2. Return on assets = Net Income / Total Sales
3. Multiplier = Total Assets / Total Stockholders' Equity
Thus, the DuPont formula is net income divided by total stockholders' equity or simply, the return on stockholders' equity

For Ford, Inc. and for the year ended December 31, 2008, the components of its return on stockholders' equity are:
1. Profit margin = -10.03%
2. Return on assets = -6.72%
3. Multiplier = -12.61 times
Hence, the DuPont ...

Solution Summary

The expert uses the extended DuPont equation to provide a summary.

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Jamison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help here answer the following question. Provide clear explanations, not yes or no answers.

A. Why are ratios useful? What three groups use ratio analysis and for what reasons?

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C. Calculate the 2011 inventory turnover, day's sales outstanding, fixed assets turnover, and total assets turnover. How does Computron's utilization of assets stack up against that of other firms in its industry?

D. Calculate the 2011 debt, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry in respect to financial leverage? What can you conclude from these ratios?

E. Calculate the 2011 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?

F. Calculate the 2011 price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate investors are expected to have a high or low opinion of the company?

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I. What are some potential problems and limitations of financial ratios analysis?

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