Assignment Lucent Technologies Case Study Solution
Question # 1 DuPont Decomposition of ROE for quarters of 1998, 1999 and 2000. Factors that Contribute to the Variance in performance of the Company.
ROE is the return on equity majorly its depends on the net income of the company as well as the investment made bythe shareholder.
The DuPont Decomposition of ROE has three major components that include Profit margins, Asset turnover and Leverage ratios
Year 1998:
Q 1 December 1997:
The net income margins of the company in this quarter has increased up to 12.8% as compared to the previous quarter in which it was 5.32%. This was caused by the increase in the revenue of the Lucent as compared to the previous Quarter in this quarter the revenue of the company was $8724 as compared to the last quarter of Year 1997 in which the sales were $6933. Further in this quarter the leverage ratio of the company has portrayed a decline and stood at 5.3 as compared to the last quarter this was because of the increase in the share capital of the company because of the increase demand and prices of the shares. This together generated a healthy ROE of Lucent.
Q 2 March 1998:
In the second Quarter of year 1998 the ROE of company was 3.69% which has declined by 20.37% and as compared to the previous quarter in which it was 24.06% this was majorly caused by the tremendous decline in the net income of the company which declined by $ 938 in this quarter the net income of the company was $186 in comparison to the last year in which it was $1124 .Further the demand of its share in the market remained high as the equity of the company was continuously increasing and it grewup to $5036 in contrast with the last quarter $4671.
Q 3 June 1998:
In this quarter the ROE of Lucent grew and stands at 10.52% this was majorly due to the increase in the Asset turnover ratio which increased by 0.5 times as compared to the preceding quarter this was due to the growth in the revenue of the company which were $ 25279 while in the last quarter it was $24664 the increase in the revenue has also caused a positive impact in thenet income margins of the company which was increased by 3.77% also in this quarter the equity of the company has declined by $114 these components in accumulation increased the ROE of the company.
Q 4 September 1998:
For the last quarter of year 1998 the ROE of Lucent is continuously increasing which stood at 11.69% and has shown an increase of 1.17% as compared to the third quarter in which the ROE of company was 10.52%. The improvement in the ROE of the company was the result of declining leverage ratio as compared to the last quarter which was caused by the increase in total assets of the company that Soared by $ 1441 in contrast with the previous quarter. Further this in quarter the equity of the company has also increased and remained at $ 5534. Also the net profit margins of the company have been positive in this quarter and remained at 7.55% an increase of 0.77% as compared to the last quarter these in combination led positive Impacts on ROE.
Year 1999:
Q 1 December 1998:
In the first quarter of year 1999 the ROE of company remained at 18.05% the increase in the ROE of the company was because of the high net income that company generated of $ 1532 as compared to the last quarter this was due to the rising net income margins and hovering revenue of the company. Further in this quarter the total asset of the company has also increased as compared to the revenues of the Lucent which led in the decline of 0.01 times the ratio of asset turnover.
Q 2 March 1999:
In the second quarter of year 1999 the ROE stands at 5.05% and showed a decline by 13% as compared to the last quarter in which it was 18.05% this was due to the simultaneous increase in the asset of the company while the equity of the company has also increased but the aggregated result of leverage ratio was 3.63 times in contrast with the last quarter on which it was 3.75 times. Moreover, the net profit margins of the company have remained at 5.56 % causing a decline of 9.91% as compared to the last quarter’s net profit margins of 15.47% this was due to the steep revenues of the company which remained at $457. In addition to this the asset turnover has also declined by 0.06 time in relation to the previous year resulting in the declivity of ROE.
Q 3 June 1999:
In this quarter of the company the revenue has also increased by $ 372 in disparity to last quarter. While the leverage ratio of the company has also declined to 3 times as compared to the last quarter in which it was 3.63 times while the asset turnover ratio remained constant,this in combination resulted in the increase of ROE. June 1999 the ROE of Lucent was 6.68% which was increase by1.63% as compared to the second quarter this was majorly caused by the unanticipated soaring in the equity of the company in this quarter. The equity of Lucent this year has grown by $ 3352 and was $12403 while in the previous quarter it was $9051. In this year the net profit margins of the company have also increased to 8.90% which was an increase of 3.34% in contrast with second quarter while the net income....................
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