DC Solutions For Exam Questions On Strategic Profit Model
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DC Solutions For Exam Questions On Strategic Profit Model

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    DC Solutions For Exam Questions On Strategic Profit Model DC Solutions For Exam Questions On Strategic Profit Model Presentation Transcript

    • Solutions for Exam Questions on Strategic Profit Model
    • Strategic Profit Model Exhibit 2.1
    • Nov 2007
    • Raffles Apparel Mart • Don’t waste time calculating the net profit margin and the asset turnover margins as they both multiply out to become the Return on Assets ratio • Return on Assets = net profit / total assets= 7983 / 76 500 • Financial Leverage = total assets / net worth = 76 500 / 35 879 • Therefore return on net worth = net profit /net worth = 7983 / 35 879 = 22.25%
    • Singapore Status Clothiers • Return on Assets = net profit / total assets= 1679 / 9400 • Financial Leverage = total assets / net worth = 9400 / 6044 • Therefore return on net worth = net profit /net worth = 1679 / 6044 = 27.78% • Therefore SSC has a higher return
    • October 2006
    • Need to work out the Return on Assets ratios: X = Return on Assets Ratios
    • Computations of Return on Net Worth Company Net profit Asset Return Financial Return margin Turnover on Leverage on Net Assets Worth SRS 3.4 0.65 2.21 5.52 12.2 KC 2.7 2.31 6.24 2.52 15.7 WG 3.9 3.11 12.1 2.27 27.5 ZZS 2.3 2.84 6.5 2.98 19.5 MDB 2.8 1.24 3.47 2.42 8.4
    • ( c ) If SRS were to raise its asset turnover ratio to the average of the four retailers: • Average asset turnover ratio of the other four retailers = (2.31+3.11+2.84+1.24) / 4 = 2.38 • Therefore the revised Return on Net Worth – Return on assets = 2.38 x 3.4 = 8.1 – Financial leverage = 5.52 (no change) – Therefore RONW = 8.1 x 5.52 = 44.67%
    • ( d ) If ZZS achieve same net profit margin as WG • Same net profit margin as WG = 3.9 • Therefore the revised Return on Net Worth – Return on assets = 3.9 x 2.84 = 11.08 – Financial leverage = 2.98 (no change) – Therefore RONW = 11.08 x 2.98 = 33.02%
    • ( e ) If MDB were to raise its financial leverage to the same level as KCS • New Financial Leverage = 2.52 • Therefore the revised Return on Net Worth= 3.47 x 2.52 = 8.75%