# Red Company: Chapter 3

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## Red Company: Chapter 3

Lecture number:
36
Pages:
1
Type:
Lecture Note
School:
Miami University, Oxford
Course:
Acc 221 - Intro to Financial Accounting
Edition:
1
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Unformatted text preview:

Lecture 36 Outline of Previous Lecture  Section 35: Red Company: Chapters 1 & 2  Chapter 1 o Income statement and input variables o Balance sheet input variables  Chapter 2 o Vertical analysis of income statement o Vertical analysis of balance sheet o Horizontal analysis of income statement o Horizontal analysis of balance sheet Outline of Current Lecture  Section 36: Red Company: Chapter 3  Chapter 3 o Dupont Analysis Current Lecture  Section 36: Red Company: Chapter 3  Chapter 3 o Dupont analysis  Four ratios to analyze a business for return on owner’s investment  Return on equity %  Return on equity % = net profit margin % (profitability) x total assets turnover ratio (efficiency) x assets-to-equity ratio (leverage)  Net income / average total stockholder’s equity  Assets to equity ratio (leverage)  Average total assets / average total stockholder’s equity  Higher value is always better  Total assets turnover ratio (efficiency)  How many dollars of net sales are generated from each \$1 of total assets`  Net sales / average total assets  Higher value always better  Net profit margin % (profitability)  Net income / net sales  Higher value always better  Return on assets %  Net income / average total assets  Increased/ decreased by changing financial leverage ACC 221 1st Edition

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