Could someone help me in answering this question In looking

Could someone help me in answering this question

In looking at the information posted by other students, consider the ratios experienced by their company and the competitor. Does something different stand out to you? How do these results compare with what you found?

Here is the question:

Find ROE, Net profit margin (listed as net margin), debt/equity ratio for the last three years for your company.

Find ROE, Net profit margin (listed as net margin), debt-equity ratio for the last year for its major peer competitor.

Has the company’s ROE changed over the last three years? What was the main factor that influenced this change?

Compare the ratios of you company to the peer competitor. If the management of the company would like to improve their return on equity, what could the management of the company do?

Here is the first classmate answer: ROE and DuPont Company: Tencent Holdings Ltd ADR (USD) TCEHY Current Stock Price: $55.87 ROE for the last three years 2015= 28,806 2016= 41,095 2017= 53,882 Net margin for the last three years 2015= 28.0 2016= 27.1 2017= 28.3 Debt/equity ratio for the last three years 2015= 0.42 2016= 0.54 2017= 0.47 Peer Competitor: NetEase Inc ADR (USD) NTES Current Stock Price: $344.27 ROE for the last year: 32.8 Net margin for the last year: 25.4 Debt-equity ratio for the last year: Not reported Tencent Holdings\' ROE has definitely changed over the last three years. It decreased 5.7% from 2014 to 2015 and then again from 2015 to 2016 by .9%. In 2017 it increased but only by 2.1% which does not make up for decreases in previous years. After reviewing the financial statements I believe revenue had the biggest impact on net income which in turn improved the ratios overall including the ROE. Something to consider here is what the company is doing to increase their ROE, as this ratio can be easily manipulated by buying back stock or borrowing. Since NetEase does not report debt to equity ratio it is not possible to determine whether they have increased their ROE by going into debt but as far as Tencent Holdings goes, they have managed to increase income and return on equity while keeping their debt to equity ratio at an average (mean) of 0.47 in the last three years. Tencent\'s net margin ratio is 28.3 in the last year while NetEase has a 25.4 which suggests they are both pricing their services/products adequately and managing their debt efficiently but Tencent\'s has a 2.9% advantage over NetEase. If the management of the company would like to improve their return on equity there are many things they can do to achieve their goal such as negotiating lower cost of operations and supply prices while maintaining the same net income. Globalization is something every business should consider in this era and something Tencent should definitely consider as a way to gain new sources of revenue. References: Bragg, S. DuPont Analysis. (2015, March 1). Retrieved from https://www.accountingtools.com/ NetEase Inc. Morning Star. Retrieved from http://financials.morningstar.com/ratios/r.html?t=NTES&region=USA&culture=en_US Tencent Holdings. Morning Star. Retrieved from http://financials.morningstar.com/ratios/r.html?t=TCEHY Kokemuller, N. (2016, May 3). Advantages of Global Companies. Retrieved from http://smallbusiness.chron.com/advantages-global-companies-57127.html

Here is the second classmate answer:

Find ROE, Net profit margin (listed as net margin), debt/equity ratio for the last three years for your company.

Home Depot, Inc. (NYSE:HD) net profit margin for the past 3 years are listed below (Morningstar, n.d.):

2015: 7.63%

2016: 7.92%

2017: 8.41%

Home Depot’s debt/equity ratio for the past three years are listed below (Morningstar, n.d.):

2015: 1.36

2016: 1.36

2017: 1.25

Find ROE, Net profit margin (listed as net margin), debt-equity ratio for the last year for its major peer competitor.

Home Depot’s largest competitor, Lowes Companies Inc. (NYSE: LOW), possesses a 3 star morningstar rating compared their own 2 star rating. Lowe’s net profit margin for the past three years are listed below (Morningstar, n.d.):

2015: 4.77%

2016: 4.29%

2017: 4.71%

Lowe’s debt/equity ratio for the past three years are listed below (Morningstar, n.d.):

2015: 1.08

2016: 1.51

2017: 2.24

Has the company’s ROE changed over the last three years? What was the main factor that influenced this change?

Home Depot’s return on equity has increased by .78% over the last three years rising from 7.63% to 8.41%. This increase is is largely due to the increase in debt. Yes, it may sound odd that a return is increased by taking on more debt, but debt equates to assets. Equity is calculated by subtracting debt from assets. This action results in financial leverage (Robertson, n.d.). Assets reported by Home Depot have increased over the past three years, linearly with the ROE. In 2015, HD reported over 39 million is assets on their balance sheet, which grew to approximately 43 million in 2017 (Morningstar, n.d.).

Compare the ratios of you company to the peer competitor. If the management of the company would like to improve their return on equity, what could the management of the company do?

Home Depot’s net profit margin (8.41%) nearly doubles that of Lowe’s (4.71%), it largest competitor. Similarly their debt/equity ratio (1.25%), is a full percentage point less than Lowe’s (2.24%). As previously mentioned, if HD wanted to increase their ROE, they could obtain more assets. This action must be approached with caution as it may tie up future monies in the terms of interest and financial obligations. Another approach to be considered is maintaining high asset turnover. This action is an indicator of efficiency. A couple of methods to increase ROE include finding tax cuts were possible, and increasing return on sales which include reducing operating costs (Robertson, n.d.).

References

Morningstar. (n.d.). The Home Depot Inc HD. Retrieved from Morningstar: http://www.morningstar.com/stocks/XNYS/HD/quote.html

Robertson, T. (n.d.). How to improve return on equity. Retrieved from Chron: http://smallbusiness.chron.com/improve-return-equity-59183.html

Solution

It is very simple:

Suppose you work in company \"X\", Let this company be Southwest airlines.

Go to the company\'s website and click on investor relations and download the form=10K for the company\'s current year. It will show all the relvant ratios.

For example: Form 10K of southwest is available at www.investors.southwest.com/financials/sec-filings

On this page download the form 10k and the financial reports, it will provide all the information you need. Enjoy!!