1-Explain how the Du Pont System can help the analyst.?The Du Pont System helps the analyst see how the firm’s decisions and activities over the course of an accounting period interact to produce an overall return to the firm’s shareholders. By reviewing the relationships of a series of financial ratios, the analyst can identify strengths and weaknesses as well as trace potential causes of any problems in the overall financial condition and performance of the firm.The ratios which are looked at include the return on investment (profit generated from the overall investment in assets) which is a product of the net profit margin (profit generated from sales) and the total asset turnover (the firm’s ability to produce sales from its assets). Extending the analysis the return on equity (overall return to shareholders, the firm’s owners) is derived from the product of return on investment and financial leverage (proportion of debt in the capital structure). Using this system, the analyst can evaluate changes in the firm’s condition and performance, whether they are indicative of improvement or deterioration or some combination. The evaluation can then focus on specific areas contributing to the changes.2-What is meant by a LIFO liquidation? How can this impact the quality of earnings?Companies that hold inventory must have a structured way of managing it.when the production or sales department need material from inventory they can either take it from the most recently purchased supply or from the supply that has been in inventory the longest.the LIFO stands for ” last in, first out” and the most recently purchased or “last in”material first as needed.when a company liquidates some of its inventory,the method it uses for it’s handling it’s inventory had an impact on profit and taces.ValuationThe distortion of financial results take place because of how a business must value inventory.A company has to carry purchased material on its books ay the coit paid.Under LIFO a company accumulates older material while continuously purchasing new materials.as price rise generally but especially during time of inflation the company carries older material in inventory at a low cost while continuously purchasing and using up new higher cost material. It’s material costs tend to be high and it’s profit low*Make sure the answers are correct and if it’s not correct provide to me the correct answers.Also if the answers correct do paraphrese for the answers.
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1-Explain how the Du Pont System can help the analyst.?
The Du Pont System helps the analyst see how the firm’s decisions and activities over the course
of an accounting period interact to produce an overall return to the firm’s shareholders. By
reviewing the relationships of a series of financial ratios, the analyst can identify strengths and
weaknesses as well as trace potential causes of any problems in the overall financial condition and
performance of the firm.
The ratios which are looked at include the return on investment (profit generated from the overall
investment in assets) which is a product of the net profit margin (profit generated from sales) and
the total asset turnover (the firm’s ability to produce sales from its assets). Extending the analysis
the return on equity (overall return to shareholders, the firm’s owners) is derived from the product
of return on investment and financial leverage (proportion of debt in the capital structure). Using
this system, the analyst can evaluate changes in the firm’s condition and performance, whether
they are indicative of improvement or deterioration or some combination. The evaluation can then
focus on specific areas contributing to the changes.
2-What is meant by a LIFO liquidation? How can this impact the quality of earnings?
Companies that hold inventory must have a structured way of managing it.when the
production or sales department need material from inventory they can either take it from the
most recently purchased supply or from the supply that has been in inventory the longest.the
LIFO stands for ” last in, first out” and the most recently purchased or “last in”material first as
needed.when a company liquidates some of its inventory,the method it uses for it’s handling
it’s inventory had an impact on profit and taces.
Valuation
The distortion of financial results take place because of how a business must value
inventory.A company has to carry purchased material on its books ay the coit paid.
Under LIFO a company accumulates older material while continuously purchasing new
materials.as price rise generally but especially during time of inflation the company
carries older material in inventory at a low cost while continuously purchasing and using
up new higher cost material. It’s material costs tend to be high and it’s profit low

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