Roe of Boston Chicken Case

DuPont analysis breakdown Boston Chicken's ROE into 3 main components: Leverage, return on assets (ROA) and interest efficiency. Based on the calculation above, we noted that the ROE increased from 1.74% in 1993 to 6.22% in 1994.

Leverage represented the % of total assets divided total assets minus total liabilities (i.e. equity) which measures the company's capital structure. The leverage of Boston Chicken increased by 48% from 116% to 164% since 1993. The significant increase is mainly due to the % increase in assets is larger than the % increase in equity. In 1994, the property & equipment and notes receivable increased by 2.2 and 4.2 times compared with 1993, which is mainly due to the development of new stores and the expansion of business. The increase in equity is mainly due to increase in issued share capital. Overall speaking, the leverage increased by 48% in 1994 means that the Boston Chicken's assets has relative to each dollar of equity increased by $0.48 in 1994, which means its capital structure improved slightly in 1994.

ROA is shows how profitable a company's assets are in generating revenue, which comprised of sales efficiency and operation efficiency. From the calculation above, we noted that the sales efficiency increased by 1.42% and the operation efficiency increased by 18.88% in 1994. No material fluctuation is noted on the sale efficiency. The increase in operation efficiency is mainly due to % increase in sales is lower than the % increase in NOPAT, i.e. the % increase in cost and expenses is lower than % increase in sales. The higher the ROA in 1994 from 1.9% to 4.57% means that the revenue generated per each dollar of assets increased from $1.9 to $4.57 in 1994 and in other words, the profitability of Boston Chicken increased.

Interest efficiency measures a company's efficiency and effectiveness at managing its interest expense. The lower the interest expenses, the