The Dupont analysis (Dupont model) is a ROE based financial ratio for assessing an ability of a company to increase its ROE. To conduct Dupont decomposition of Lucent's ROE we need to break it down in three components: Profit Margin, Asset Turnover and Equity Multiplier (Financial Leverage). Then we are going to assess them separately.
|
|
Sep-97
|
Dec-97
|
Mar-98
|
Jun-98
|
Sep-98
|
Dec-98
|
Mar-99
|
Jun-99
|
Sep-99
|
Dec-99
|
|
Net Income
|
369
|
1124
|
186
|
518
|
647
|
1523
|
457
|
829
|
972
|
1175
|
|
Sales
|
6933
|
8724
|
6184
|
7642
|
8574
|
9842
|
8220
|
9315
|
10575
|
9905
|
|
Assets
|
23811
|
24752
|
24664
|
25279
|
26720
|
31641
|
32840
|
37156
|
38735
|
38634
|
|
Equity
|
3387
|
4671
|
5036
|
4922
|
5534
|
8437
|
9051
|
12403
|
13622
|
16079
|
|
|
Sep-97
|
Dec-97
|
Mar-98
|
Jun-98
|
Sep-98
|
Dec-98
|
Mar-99
|
Jun-99
|
Sep-99
|
Dec-99
|
|
Profit Margin
|
0.05
|
0.13
|
0.03
|
0.07
|
0.08
|
0.15
|
0.06
|
0.09
|
0.09
|
0.12
|
|
Asset Turnover
|
0.29
|
0.35
|
0.25
|
0.30
|
0.32
|
0.31
|
0.25
|
0.25
|
0.27
|
0.26
|
|
Equity Multiplier
|
7.03
|
5.30
|
4.90
|
5.14
|
4.83
|
3.75
|
3.63
|
3.00
|
2.84
|
2.40
|
|
ROE
|
0.11
|
0.24
|
0.04
|
0.11
|
0.12
|
0.18
|
0.05
|
0.07
|
0.07
|
0.07
|
The Dupont analysis (Dupont model) is a ROE based financial ratio for assessing an ability of a company to increase its ROE. To conduct Dupont decomposition of Lucent's ROE it has to be broken down into three components: Profit Margin, Asset Turnover and Equity Multiplier (Financial Leverage). Thereafter, they data should be analyzed individually.
|
|
Sep-97
|
Dec-97
|
Mar-98
|
Jun-98
|
Sep-98
|
Dec-98
|
Mar-99
|
Jun-99
|
Sep-99
|
Dec-99
|
|
Net Income
|
369
|
1124
|
186
|
518
|
647
|
1523
|
457
|
829
|
972
|
1175
|
|
Sales
|
6933
|
8724
|
6184
|
7642
|
8574
|
9842
|
8220
|
9315
|
10575
|
9905
|
|
Assets
|
23811
|
24752
|
24664
|
25279
|
26720
|
31641
|
32840
|
37156
|
38735
|
38634
|
|
Equity
|
3387
|
4671
|
5036
|
4922
|
5534
|
8437
|
9051
|
12403
|
13622
|
16079
|
|
|
Sep-97
|
Dec-97
|
Mar-98
|
Jun-98
|
Sep-98
|
Dec-98
|
Mar-99
|
Jun-99
|
Sep-99
|
Dec-99
|
|
Profit Margin
|
0.05
|
0.13
|
0.03
|
0.07
|
0.08
|
0.15
|
0.06
|
0.09
|
0.09
|
0.12
|
|
Asset Turnover
|
0.29
|
0.35
|
0.25
|
0.30
|
0.32
|
0.31
|
0.25
|
0.25
|
0.27
|
0.26
|
|
Equity Multiplier
|
7.03
|
5.30
|
4.90
|
5.14
|
4.83
|
3.75
|
3.63
|
3.00
|
2.84
|
2.40
|
|
ROE
|
0.11
|
0.24
|
0.04
|
0.11
|
0.12
|
0.18
|
0.05
|
0.07
|
0.07
|
0.07
|
Evaluate the seasonally adjusted change (i.e., quarter i in year t to quarter i in year t-1) in Lucent's: Sales, Accounts Receivable, Inventory and Gross Margin for the five quarterly periods: December 1998 through December 1999. Be sure to include an evaluation of the Footnote disclosures regarding Lucent's inventories in your examination. Does the explanation for the earnings shortfall provided by Lucent's managers make sense in light of your analysis?
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Variance vs LY
|
Variance vs LY
|
Variance vs LY
|
Variance vs LY
|
Variance vs LY
|
|
Total Revenues
|
1%
|
23%
|
22%
|
33%
|
13%
|
|
Gross Margin
|
-11%
|
18%
|
26%
|
42%
|
24%
|
|
Net Income
|
-23%
|
50%
|
60%
|
146%
|
35%
|
|
Account Receivables
|
10%
|
50%
|
64%
|
57%
|
46%
|
|
Inventory
|
42%
|
64%
|
74%
|
51%
|
45%
|
|
Allowance for bad debt
|
10%
|
-7%
|
5%
|
-5%
|
1%
|
An issue with inventories was definitely a problem however this is not showing the complete reality of the company. It is true Inventories are a big part of the problem since sales decreased due to a shift in demand and they build a lot of inventory to show more assets, but also they decrease Net income due to higher cost of sales and an increase in receivables.