The Financial Cockpit: Three Levers And One Flight Plan Harvard Case Solution & Analysis

Which of the nine companies used its assets most productively?

 There are nine companies that further split into three different industries. The basis of most productive company should be based on asset turnover rather than return on asset. Asset turnoveris financial ratio that measures the efficiency of asset to generate sales. Return on asset is ration that determine the return on assets.

Using all ratio analysis the most productive company out of nine company is Dell, which yields 2.25 times on asset turnover using 5 yearly and 2.17 times of asset turnover in one year.By usingreturn on asset data again Dell yields highest of all 9% ROA using 5 year data and 13% ROA in one year.Therefore,it can be concluded that most productively company is Dell.

 Which of the companies used debt most aggressively in financing its operations?

 Using portion of debt means company is gearing up itself and incorporating amount of debt. Higher leverage means potential risk but it also earns potential rewards as well. By comparing financial leverage of 9 companies it can be concluded that Dell is using debt more aggressively as 5 yearly financial leverage is 6.44 and 1 year financial leverage is 3.62 which is highest from all other companies.

Which company’s ROE would be the most attractive to investors, and how was it generated?

Then againDell’s return on equity or ROE is most attractive from all other companies because it yields 58% ROE on 5 year data basis while 47% on yearly basis.

By using Duo Pont analysis it can be concluded that Dell have utilized it assets productively and heavily rely on its debt or use of financial leverage. By combination of asset turnover and financial leverage, Dell was able to attain high ROE.

Which company changed the most in how it generated ROE results for investors from Year 1 to Year 5? Explain.

Apple can be identified as company which changesoften. Apple’s ROE in year 1 is 5% while 5 yearly is 23%.There is significant improvement in Return on sales.

ROE of Apple is improved due to the fact that Apple’s ROA improved on 1 year it is just 3% while on year 5 scale it was12%.

Did any of the companies change for the worse in how it generated ROE results for investors from Year 1 to Year 5? Explain.

P&G and Yahoo can be identified as change for the worse,asP&G asset turnover and financial leverage decreased which impacted the ROE. Decrease in asset turnover means thatthe company was unable to utilize its assets productively. Reducing financial leverage is often seem to be good but taking extra risk yields extra earnings.

In case of Yahoo, ROS have dropped significantly and hence have impacted ROE. Decline in ROS can be because of increase in sales but due to the increase in expenses, profitabilityhasdeclined.

What were the ratio amounts, for the same nine companies in years subsequent to Year 5, and what insights did those additional data offer?

There is significant change in Yahoo and HPin the given financial data. Yahoo can be seen as turnaround as 5 year net impact on ROE is 4% while in one year ROE increased from 4% to 12% which is a significant increase. This increase is due to the significant increase in Return on Sales ROS andFinancial leverage which help to achieve thehigher ROE.

In the case of HP’s performance, it is the opposite ofYahoo. If HP’s 5 years performance is basedonperformanceof year 1 thenit can be concluded that due to the decrease in return on sales, return on asset and leverage the end result was thatROE significantly declined from 21% on average to 9% on average.

Were there other companies that should be reviewed to help evaluate CFI more fully and to help grasp the varied way(s) other companies generated ROE results for their investors?

Yes, there are many other companies through which CFI’s performance can be evaluated. The closest company to CFI is IKEA. IKEA is a multinational group of companies, which designs and sells ready-to-assemble furniture, appliances, small motor vehicles and home accessories. If IKEA performs Duo Pont analysisthen thecomparable data will be more useful in comparison.

The Financial Cockpit Three Levers And One Flight Plan Case Solution

 What other data and sources of information would be important to tap into in order to more fully flesh out the story depicted by these DuPont ratio amounts and trends?

Other data source will include ratio average of different industry which will help to compare according to the industry. Companies which are in same industry and sector will be more helpful to give financial comparison..........................................

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