Construct the DuPont system of analysis using the following financial data for Key Wahl

Industries and determine which areas of the firm need further analysis.
Key Financial Data
Key Wahl Industries
Sales
Net profits after taxes
Total assets
Total liabilities
Industry Averages
Total asset turnover
Debt ratio
Financial leverage multiplier
Return on total assets
Return on equity
Net profit margin

$4,500,000
337,500
6,750,000
3,375,000
0.71
33.00%
1.50
6.75%
10.00%
9.50%

Ratios for Key Wahl Industries

Total asset turnover

Debt Ratio

4,500,000
0.67
6,750,000

3,375,000
50%
6,750,000

Financial leverage multiplier

ROA

1
2
1 - 0.5

337,500
x 100% 5%
6,750,000

ROE ROA x Financial leverage multiplier 5% x 2 10%

Net profit margin

337,500
x 100% 7.5%
4,500,000

Analysis:
Based on return on equity, Key Wahl Industries performs equally to industry
averages which it is good. However, when analyzing other financial data further into

DuPont systems key main components i.e. a profit-on-sale, efficiency-of-asset use, and
a use-of-leverage component, there are areas of improvement need to be highlighted.
Key Wahl Industries has lower net profit margin (7.5% vs 9.5%) and total asset turnover
lower (0.67 vs 0.71) than industry average. Nonetheless, through excessive use of
leverage i.e. a debt ratio of 50% compare to 33% of industry average, the firm able
make up the low profit margin. Key Wahl Industries able to reduce its financial risk
resulting in the same return on equity by increasing the net profit margin and reducing
debt