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Based on the information from last question, the average ratios for energy industry in which Nash Energy Limited is operated are as follows: PM (Ratio) = 7.2% Industry average
TATO (Ratio) = 0.49x Industry average
Fixed assets turnover (Ratio) = 0.56x Industry average
Debt ratio = 47.4% Industry average
ROE (Ratio) = 6.7% Industry average
a. Construct DuPont equation and compare the company's ratios to the industry average ratios. If the company's ROE is not same as that of industry average, explain the possible reason. (5 marks)
b. From a stockholder's viewpoint, which profitability ratio is more significant? Profit Margin, ROA, or ROE? Explain why. (5 marks)
c. Many companies also use Du Pont equation to analyze the change of ROE. Explain why Du Pont equation is useful? (5 marks)

Answer :

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