1) Match the following ratios/measurements to the appropriate descriptions
__ Financial leverage A. Operating efficiency
__ Operating (EBIT) Margin B. Effective asset selection (investment decisions)
__ Asset Turnover C. Production efficiency (value added)
__ Return on Equity D. Risk/Confidence
__ Return on Assets E. Overall efficiency
__ Operating retention F. Treasury function efficiency
__ Profit Margin E. Non-production operating efficiency
__ Non-operating retention G. Overall profitability
______Gross profit margin H. Effective use of assets
2) Identify the two different approached to calculating EBIT and discuss the merits or problems associated with each.
3) Explain the merits of DeGeorge’s disaggregation of Profit Margin compared to the tradition DuPont disaggregation of Profit Margin.
4) You go to work for a company that uses the DuPont method to disaggregate profit margin. How might you disaggregate EBIT margin to impress your supervisor, earn
more money for your owners in the very near future and secure for yourself a very nice promotion?
5) DeGeorge needs to lose weight. Disaggregate the problem.
Sample Solution