1. In the file "IndustryData.

xlsx" data for 50 Swedish firms for ten years are

assembled. There are five industries (with industry codes: 10, 17, 25, 26
and 29).
(a) Calculate each firms return on assets () and return on (book)
equity () nine years back in time (if available), defined as:

1

1

(b) Use the so called "DuPont analysis" to divide up ROE in three components:

=
=

1
1
1 1

where and are the firms profit before interest and taxes
and net income in period respectively; 1 and 1 is the
firms book value of equity and total assets at the end of the previous
period (respectively), and is sales revenue (turnover) during

period Note that

is the firms profit margin;
1 is the

1
total asset turnover ratio, and
shows the leverage eect, i.e.,
1
how leverage magnifies the return on total assets into the return on
equity.

(c) Pick one industry and comment on the dierrences in the calculated
ratios beteen the firms within that industry. Note that you only have
to calculate the ratios in one worksheet; by holding down Ctrl and
click on the other worksheets you can copy the formulas to other
worksheets in one go.
(d) In the worksheet "Summary" and should
appear. Calculate the averages and standard deviations for each firm
over time and for each time period. Also calculate the time averages
for each industry (by taking the average of the averages).
(e) Use the calculated values of of and to calculate
the implied value of the return on debt ()
2. In the worksheet Regression Analysis 1 the time average and
for each firm should appear in cell 2 : 51 In columns : industry
dummy-variables are included. Estimate an aggregate leverage equation:
= + () +
1

In this equation would be equal to for firm and would be the

dierence between total return on assets and the return on debt. Use Excels regression tool to estimate and Also use the industry dummyvariables to check whether the intercept dier between industries. Note
that to avoid the dummy-variable trap you should exclude one dummyvariable (exclude 29) or alternatively you include all dummies but you
check the box Constant is Zero in the dialogue box. Interpret and comment on the results.
3. In the worksheet Regression Analysis 2, the variables and 2
should appear. The data is pooled for three years (i.e., each firms data
appears three times), for = 2012 = 2009 = 2006 Make a regression
of the following type,
= + 2 +
The purpose here is to test the trade-o theory of capital structure. If
firms have an optimal, preferred debt-ratio, they will try to resurrect
it if they have been temporarily thrown of the optimum (by a positive or
negative shock to their asset values). In they do not have any preferred
ratio they will maintain whatever ratio they happen to have (after the
shock) and = 1 if they 2 was too high, they would like to
reduce it and 1 and vice versa if 2 was too low. Estimate the
model and test whether 1 against the null hypothesis that it is equal
to one.
4. The file "Dividends.xlsx" contains data for dividends per share (DPS) and
earnings per share (EPS), for a number of stock market quoted Swedish
firms. Estimate Lintners Dividend smoothing model (see the file "Lintners.pdf"). Find values for (the speed of adjustment parameter) and
(the target long-term payout ratio). Compare, with the average payout
ratio over the observation period. Note, this model will only work if the
company paid dividends each year.