Data Analytics – Excel Exercise – This is a data analytics exercise modified from the one presented in your textbook. We will be using Excel to perform an analysis of two companies: GPS Corporation and Tru, Inc.

Data Analytics – Excel Exercise –
This is a data analytics exercise modified from the one presented in your textbook. We will be using
Excel to perform an analysis of two companies: GPS Corporation and Tru, Inc.
Please download the Excel spreadsheet “GPS_Tru_Financials.xls” from the Data Analytics Module on
Canvas.
Part 1: For each of the two companies in the most recent five-year period 2017-2021 calculate and
display (using the chart option) the trends for the:
(a) Debt to equity ratio (Total Debt / Total Equity)
(b) Rate of return on assets (Net Income / Total Assets)
(c) Rate of return on shareholders’ equity (Net Income / Shareholders’ Equity)
Please make sure to label the charts correctly (including chart title, x-axis, and the y-axis). These charts
will be used to answer the next part and will be submitted as supporting material.
Part 2: Based on what you find, answer the following questions:
1. Which of the two companies finances a higher percentage of its assets by borrowed funds
relative to funds invested by shareholders as measure by the debt to equity ratio in 2021?
2. Which of the two companies indicates a higher profitability during the period 2017-2021
without regard to the sources of financing as measured by the return on assets ratio?
3. Which of the two companies indicates a higher effectiveness of employing resources provided
by owners during the period 2017-2021 as measured by the return on shareholders’ equity
ratio?
4. Management is using its borrowed funds to enhance the earnings for shareholders of (a) GPS
Corporation, (b) Tru, Inc., (c) both firms, or (d) neither firm during the period 2017-2021?
Background Information
• What does the debt to equity (D/E) ratio tell us? The firm’s capital structure refers to the
amount of debt and equity the company uses to finance its operations. D/E ratio is oftentimes
used as a measure of risk. All else equal, the higher the D/E ratio, the higher the risk. The risk
referred to here is “default risk” because it indicates the likelihood the company will default on
its obligations (if it borrows excessively).
However, debt can also create “favorable financial leverage”. If the company can earn a return
on the borrowed funds in excess of the cost of borrowing the funds, then shareholders are
provided with a total return greater than what could have been earned with equity funding
alone. Examining additional ratios will help determine whether the company has a favorable
financial leverage.
• What does return on assets (ROA) ratio tell us? ROA (net income / assets) is a measure of the
company’s profitability. It measures profitability without regard to the source of the company’s
financing (i.e., whether the financing is debt or equity). Remember, Assets = Liabilities + Equity,
so when we divide by assets we are dividing by debt and equity.
You can also think of ROA in terms of how well the company employs its assets. The ratio helps
us answer the following question: for every $1 of asset the company employs, how much net
income does the company generate?
• What does return on shareholders’ equity (ROE) ratio tell us? ROE (net income / shareholders’
equity) is also a measure of the company’s profitability. However, it does measure profitability
with regard to the source of financing – it looks specifically at the shareholders’ equity (rather
than debt and equity combined). Doing so, the ROE measures how effective the company is at
employing resources provided by the owners’ of the company.
The ratio helps us answer the following question: for every $1 of financing provided by
shareholders, how much net income does the company generate?
• Does the company have favorable financial leverage? For our purposes, we will consider a
company to have favorable financial leverage if its ROE is greater than its ROA.
Assignment Submission:
To receive full credit,
A. Your answers to the above four questions.
B. Supporting data and labeled charts associated with the three ratios (debt to equity, return on
equity, and return on assets). You will need to copy your chart from Excel (Microsoft ‘snip and
sketch’ is an easy tool you can use to avoid any formatting issues).