D DuPont analysis

uPont analysis is a method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are measured at their gross book value rather than at net book value to produce a higher return on equity (ROE). It is also known as DuPont identity.

DuPont analysis breaks ROE into its constituent components to determine which of these components is most responsible for changes in ROE.

Net margin: Expressed as a percentage, net margin is the revenue that remains after subtracting all operating expenses, taxes, interest and preferred stock dividends from a company's total revenue.

Asset turnover ratio: This ratio is an efficiency measurement used to determine how effectively a company uses its assets to generate revenue. The formula for calculating asset turnover ratio is total revenue divided by total assets. As a general rule, the higher the resulting number, the better the company is performing.

Equity multiplier: This ratio measures financial leverage. By comparing total assets to total stockholders' equity, the equity multiplier indicates whether a company finances the purchase of assets primarily through debt or equity. The higher the equity multiplier, the more leveraged the company, or the more debt it has in relation to its total assets.

1. DuPont Analysis ⃝ Presented By: Students of Osama Bashir Soomro

2. Basic Phenomena ⃝ Organization’s performance attract the investor to invest in the organization ) ⃝ Organization's Objective To Maximize Shareholder's Value ⃝ Investor’s Objective Invest where return is maximum

3. Performance Measurement ⃝ Performance can be Measured by calculating Return on Equity (ROE) ⃝ Higher ROE is Organization’s Favorable

4. Return on Equity ⃝ ROE is a measure of how well a company uses investments to generate earnings growth ⃝ E xpressed as a percentage and calculated as : ⃝ Return on Equity = Net Income/Shareholder's Equity

5. What is DuPont Analysis ? ⃝ Method of performance measurement ⃝ Started by the DuPont Corporation in the 1920s ⃝ Also known as DuPont identity ⃝ Calculates Return on Equity  

6. DuPont Analysis Formula ROE = ( Profit margin ) * ( Asset turnover ) * ( Equity multiplier ) 

7. Profit margin ⃝ Measures Profitability ⃝ Net Profit / Sales

8. Asset Turnover ⃝ Measures Asset efficiency ⃝ Sales / Total Assets

9. Equity Multiplier ⃝ Measures Financial leverage ⃝ Total Asset / Shareholders' Equity

10. DuPont Analysis Formula ROE = ( Profit margin ) * ( Asset turnover ) * ( Equity multiplier )  ROE = ( Net Profit / Sales ) * ( Sales / Total Assets ) * ( Total Asset / Shareholders' Equity ) 

11. Comparison of Formulas DuPont Analysis Profit margin Asset turnover Equity multiplier Net Profit Sales Sales Total Assets Total Asset Shareholders' Equity Net Profit Shareholders' Equity Return on Equity =

12. Benefits ⃝ It tells how the company is achieving its ROE ⃝ Is the company increasing margins? ⃝ Is the inventory turnover increasing? ⃝ Is leverage being used? ⃝ Which Thing Under / Better Performing ⃝ Company is boosting ROE through improved profitability , asset turnover or financial leverage. 

13. Sample Data (A)                 2010 2011 2012 2013 2014 2015               Revenue 475.16 431.05 457.05 503.55 635.42 987.26 Net Income 46.25 35.69 27.98 50.11 75.73 97.32 Total Assets 251.39 266.52 284.69 326.86 447.70 639.79 Shareholders Equity 211.92 215.33 206.24 267.79 357.30 474.88                             Profit Margin 10% 8% 6% 10% 12% 10% Asset Turnover 1.89 1.62 1.61 1.54 1.42 1.54 Equity Multiplier 1.19 1.24 1.38 1.22 1.25 1.35                             Return on Equity 22% 17% 14% 19% 21% 20%               Company A

14. Sample Data (B)                     2010 2011 2012 2013 2014 2015                   Revenue 1,205.37 1,394.18 1,440.74 1,438.10 2,011.44 1,613.57   Net Income 70.99 75.69 55.40 54.70 136.15 (67.48)   Total Assets 737.05 827.98 876.32 995.55 1,304.79 1,281.89   Shareholders Equity 449.09 626.66 668.69 745.92 908.20 852.56                                   Profit Margin 6% 5% 4% 4% 7% -4%   Asset Turnover 1.64 1.68 1.64 1.44 1.54 1.26   Equity Multiplier 1.64 1.32 1.31 1.33 1.44 1.50                                   Return on Equity 16% 12% 8% 7% 15% -8%                                 Company B

15. Thank You !