Chrysler, Gm Ford

I. Financial Performance

ROE Profitability Asset Utilization Leverage

NI/E = Ni/S x S/A x A/E

1983 1982 1983 1982 1983 1982 1983 1982

GM 17.90% 5.20% 5.00% 1.60% 1.63 1.45 2.20 2.26

FORD 24.70% -10.90% 4.20% -1.80% 1.86 1.68 1.96 1.60

Chrysler 51.50% 17.10% 5.30% 1.70% 1.96 1.60 4.96 6.32

1. Profitability Differences

Chrysler is #1 because of greater demand for its new small front wheel drive cars. GM # 2 because of economies of scale, which allowed it to bring down costs more. Ford without either a timely product line or economies of scale is # 3.

The students could also explain profitability differences by breaking down the net profit margin through a vertical analysis (% of sales) of the income statement, and highlighting differences between the two other companies and GM. But this is not required since all I asked for was the Dupont Equation analysis.

2. Asset Utilization

Chrysler #1 either because of the numerator (high because of greater demand for its new small cars) or the denominator (low because of the outsourcing of some production to Japan and less fixed assets needed for smaller cars).

GM was last either because of the numerator (lesser demand for its bigger cars) or denominator (higher because of its greater backward integration into more capital intensive and less value added activities).

Ford is in the middle because numerator lower because of lack of saleable product (like Chrysler) yet denominator lower because of less big cars in its portfolio requiring lesser fixed assets to produce or perhaps more European outsourcing. European outsourcing my own addition from outside reading, but not required. ☺

The students could also explain profitability differences by breaking down the assets through a balance sheet analysis (% of assets), and highlighting differences between the two other companies and GM.