Chapter 4 Analysis of Financial Statements 1034-9 RATIOS IN DIFFERENT INDUSTRIES
Table 4-2 provides a list of the ratios for a number of different industries in early
- ROEs vary across industries, ranging from 45.7% for education and training
services to 0.9% for newspapers. The education and training services industry has
been positively impacted by enrollment growth of online operations in schools.
The newspaper industry has been in decline because the proportion of the popula-
tion that reads newspapers has been in a long-term decline, which has a negative
impact on the demand for newspaper advertising. Industry rankings change from
year to year because! rms and industries go through cycles of good and bad times.
When times are good, companies often overexpand, which leads to hard times.
Note too that there are huge differences between individual companies in a given
industry. That point isn’t illustrated in Table 4-2, but it shows up dramatically in
Table 4-4 in Section 4-11.
SELF^ TEST Why might railroads have such low total assets turnovers and food wholesal-
ers and grocery stores such high turnovers? (Railroads require many long-
term assets; while grocery companies have more perishable products
and thus high turnovers.)
If competition causes all companies to have similar ROEs in the long run,
would companies with high turnovers tend to have high or low pro! t mar-
gins? Explain your answer. (Low)Tabl e 4 - 2 DuPont Financial Ratios for Selected IndustriesaIndustry Name ROE =Profit
Margin ×Total Assets
Turnover ×Equity
Multiplierb
Aerospace/defense—major diversified 41.4% 6.8% 1.0 6.1
Apparel stores 37.2 6.7 1.8 3.1
Auto mfg.—major 12.9 3.9 0.8 4.1
Beverage (soft drink) 21.6 14.1 0.8 1.9
Education and training services 45.7 13.0 1.4 2.5
Electronics—equipment 6.8 4.7 0.9 1.6
Food wholesaling 17.8 1.5 3.3 3.6
Grocery stores 19.1 3.7 2.5 2.1
Lodging 30.6 12.6 0.9 2.7
Medical instruments and supplies 9.6 4.5 0.7 3.0
Metals and minerals—industrial 34.8 10.9 0.7 4.6
Newspapers 0.9 8.5 0.3 0.4
Paper and paper products 15.1 13.5 0.8 1.4
Railroad 15.3 15.0 0.4 2.6
Restaurant 15.3 8.1 0.7 2.7
Retail—department stores 18.4 4.8 1.7 2.3
Scientific and technical instruments 12.9 9.0 0.8 1.8
Sporting goods 15.2 4.1 1.7 2.2
Steel and iron 36.3 23.5 0.8 1.9
Telecommunications services—
domestic
11.9 10.1 0.4 2.9Tobacco (cigarettes) 14.4 15.4 0.3 3.1
aThe ratios presented are averages for each industry. Ratios for the individual companies are also
available.
bCalculated as ROE/ROA.
Source: Data obtained from the Key Ratios section, http://moneycentral.msn.com, February 7, 2008.