Debt

Virtual Organization Du Pont Analysis

Riordan Manufacturing, Inc is a multi-million dollar organization based in Albany, Georgia that employs over 500 employees (Virtual Organizations, 2006). Riordan manufacturing, Inc has shown steady financial growth for fiscal years of 2004 and 2005. The financial statements for these years reflect overall growth in sales, company assets and stockholder equity from 2004 to 2005 respectively. This paper will discuss the Du Point Analysis conducted for Riordan Manufacturing, Inc and analyze the differences in return on equity based upon the 2004 and 2005 financial statements reviewed for the organization.

Net Margin

Net margin reflects the percentage of profit gained by an organization for every item sold. When an organization's net margin percentage increases the organization benefits from a larger percentage of profit from every sale. The Du Point Analysis for Riordan shows that net margin slightly decreased in 2005 compared to 2004, this decrease confirms that Riordan now earns a lower percentage of profit per sale in 2005 than in 2004. The question that should be posed to the organization is "what has caused a decrease in net margin for 2005?"

Financial data for 2004 and 2005 show that total sales for 2005 increase by over $2 million since 2004, one would assume that a rise in sales would warrant a rise in net income would produce an increase in ROE. However the contrary accrued for Riordan, ROE decreased, based upon financial data reviewed in the income statement and the statement of cash flows, an increase in spending towards expenses paid in 2005 largely affected the total of net income which caused a decrease in net margin.

Asset Turnover

Total asset turnover is used to determine how much sales revenue a company generates from its investment in assets (Wikipedia, 2006). When there is an increase in the percentage of asset turnover an organization benefits from an increase in sales for every asset owned. Riordan Manufacturing, Inc did produce growth in asset turnover for 2005 and this growth is reflected in their increase in sales for the same year. Question: What major factor caused a growth in asset turnover?

The growth in asset turnover for Riordan in 2005 was mainly due to a near $1 million dollar increase in company assets. A growth in total assets along with a growth in sales causes a rise in asset turnover. Riordan should continue to acquire company assets to encourage sale growth.

Financial