From the course: Finance for Non-Financial Managers (2015)
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What is the next step in the analysis?
From the course: Finance for Non-Financial Managers (2015)
What is the next step in the analysis?
- Okay, we've now completed step one using the DuPont framework to break down return on equity into its component parts. Now what? Well, it turns out that the numbers can tell you what has happened. Additional analysis can shed light on why things happen. The numbers, as we're going to find, seldom provide the answers to questions. The numbers point you in the direction of the next question and eventually we're going to end up talking to an individual. So to review, the DuPont framework analysis is the first step. We do that first. We take return on equity and break it down into profitability, efficiency, and leverage. The second step in our analysis would be to prepare common size financial statements. Common size financial statements allow us to compare companies of different sizes, both across time or at the same point in time across companies. Based on that analysis, we then have additional ratios we could use.…
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