Requirement-b:

Du Pont Equator of Campsey Computer Company and the Industry

Return on Assets (ROA) = Net Income

Total Assets

 For Campsey Computer: ROA= 2.88%

 For Industry: ROA= 3.6%

Return on Equity (ROE) = Return on Assets (ROA)

Equity Multiplier

 For Campsey Computer: ROE= 7.56%

 For Industry: ROE= 9.0%

As we see ROA and ROE of Campsey is lower than Industry, the reasons are-

i. Current ratio is almost near to industry average. Campsey is able to pay off its short-term
liabilities with its current assets.
ii. Each item of inventory is sold out and restocked, or turned over 5.6 times per year (Every
65 days), which is equal to the industry average. It has good inventory control. This
shows the company does not overspend by buying too much inventory and wastes
resources by storing non-salable inventory. It also shows that the company can
effectively sell the inventory it buys.
iii. Receivables collection is very poor. Sales outstanding is about 75.25 days, which is more
than two times of industry average. It may create operating cash problem for the
company.
iv. Total Asset Turnover ratio is lower than the industry average indicating that company
isn't using its assets efficiently and most likely have management or production problems.
v. Return on assets is below the industry average. This low return results from the
company’s higher-than-average use of debt.
vi. Return on equity is lower than industry average. This result follows from the company's
greater use of debt. It also indicates that the company is not using its investors' funds
effectively.
vii. Campsey's debt ratio is almost 62%, which means that its creditors have supplied more
than half of the firm's total financing. This Ratio is higher than the industry average.
Campsey might find it difficult to borrow additional funds without first raising more
equity capital through a stock issue.

Sadia Ahmed [Page 3]