Financial Analysis Report: DuPont, Common Size, Trend, Beneish M Score

This report presents a detailed analysis of a financial audit, employing various techniques to assess the company's performance over several years. The analysis begins with a DuPont analysis to examine the return on equity, followed by a common-size statement analysis to identify trends in the income statement and balance sheet. Trend analysis is then used to assess the growth of key financial metrics. The report also includes a Beneish M-Score analysis to detect potential earnings manipulation. The findings reveal insights into the company's profitability, financial health, and potential accounting irregularities, providing a comprehensive overview of its financial performance and areas for improvement. The report concludes with references to support the analysis.

Running head: AUDIT
Audit
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
DuPont Analysis..............................................................................................................................2
Common size Statement analysis....................................................................................................2
Common Size income Statement:................................................................................................2
Common Size Balance Sheet.......................................................................................................3
Trend Analysis.................................................................................................................................3
Income Statement Analysis.........................................................................................................3
Balance sheet Analysis................................................................................................................3
Beneish M Score Analysis:..........................................................................................................4
Reference.........................................................................................................................................5

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DuPont Analysis
The DuPont analysis is focused on analyzing the return on equity that is generated by the
company for its shareholders. For this the product of three ratios that is Total asset turnover ratio,
profit margin and financial leverage is calculated. Significant indication can be found from the
DuPont analysis done in the table. In the year 2001 all, the three ratios increased thereby creating
maximum ROE (Gitman et al. 2015). However in the year 2002 and 2003 the profit margin
increased to 30% and remained there while the other two ratios i.e. Total asset turnover ratio and
financial leverage started decreasing thereby resulting in a decrease in the ROE of the company
from 25% to 14%. After 2003 the profit margin kept on decreasing over the years along with no
significant increase in the other two ratios thereby the ROE of the company decreased from 14%
in the year 2003 to 8% in the year 2007. The company should focus on increasing its profit
margin in order to create value for the shareholders in terms of increased ROE.
Common size Statement analysis
Common Size income Statement:
From common size income statement, the following trends can be found very evidently:
a) The company was able to generate good EBITDA between 2000 and 2003 with 54%
being the highest in the year 2001. Thereafter the company’s EBITDA has shown a
downward trend that has resulted the EBITDA to drop to a minimum level of 19% in the
year 2007. This is an adverse indication that the company’s earnings are reducing
significantly over the years.
b) The EBIT of the company has followed more or less the same trend as that of the
EBITDA due to the fact that the depreciation of the company has not experienced very
significant change over the years the highest being 4 and the lowest being 1. Thus the

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EBIT of the company has also decreased over the years to the minimum level of 17%. In
terms of Net Profit, the company has recorded the minimum amount of 9% in the year
2007.
Common Size Balance Sheet
The calculation indicates that the available cash of the company has decreased
substantially over the years. It has dropped from 11% in the year 2000 to 6% in the year 2007.
Another most important and significant occurrence is that the company has completely lost its
reserves and surplus that means it has become negative over the years (Damodaran 2016). The
company’s share capital has also decreased over the years. After recording highest percentage of
70% in the year 2006 the share capital of the company fell to 43% in the year 2007.
Trend Analysis
Income Statement Analysis
The operating income of the company has been able to increase 16972% with respect to
the base year of 2000. The corresponding operating expenses grew to over 24202% from the
base year. The EBITDA of the company has recorded consistent growth and finally increased to
7699% which shows that the company has been able to increase its operational profitability to a
great extent (Meng 2015). The net profits of the company have followed the same trend as that of
the EBITDA and recorded a change of 9956% with respect to the base year of 2000.
Balance sheet Analysis
The cash of the company though started with a slow growth rate but later on due to the
increased sale and profitability there has been infusion of cash in the business thus increasing the
percentage change in the cash to 8368%. The share capital of the company has grown by

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13783% with respect to the base year. This shows that there has been an infusion of shareholders
capital in the business which shows confidence of the shareholders. The company has also been
able to increase its retained earnings over the period and the [percentage change in the retained
earnings is equal to 10722%. This is sync with the fact that the company has been reporting high
operational profitability.
Beneish M Score Analysis:
As we know that a score which is less than that of -2.22 is favourable for the company
and a score greater than that indicates that the company has engaged itself in some manipulations
of the earnings. It is clear from the table that from the year 2003 there have been manipulations
in the records of the company (Aithal et al., 2016). The company has done the most significant
manipulation in the year 2006 in which there has been an abnormal increase in the day’s sales in
receivables index that has resulted the score to be around 26.49. This indicates the company has
engaged in manipulation of accounts.

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Reference
Aithal, P.S., VT, S. and Kumar, P.M., 2016. Analysis of ABC Model of Annual Research
Productivity using ABCD Framework.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Meng, Q., 2015. A Study of Islamic Financial Regulatory System from the “One Belt and One
Road” Perspective. Journal of Shanghai University of Finance and Economics, 5, p.010.