Question

Given the following information in the DuPont equation format, which firm has the least amount of relative debt? Profit Asset Financial Margin Turnover Leverage Kohl's 13.54% = 6.24% X 1.7835 X 1.2169 J C Penney 17.83% = 5.02% X 1.9322 X 1.8360 Target 15.60% = 4.46% X 2.0115 X 1.7375 Tuesday Morning 15.70% = 2.73% X 3.7870 X 1.5183 WalMart 18.32% = 3.11% X 3.1970 X 1.8433

Answer 1

We see that the leverage of Kohl is 1.2169

JC Penny is 1.8360

Target is 1.7375

Tuesday Morning is 1.5183

Walmart is 1.8433

Leverage is Total assets/ Equity

Higher this ratio, lesser is the equity in the firm and higher is the debt. Similary lower the ratio, higher is the equity and lower is the debt.

Hence the relative debt of Kohl is the lowest at 1.2169