DU PONT analysis is a tool used to examine a company's return on equity. It breaks down ROE into three components: profit margin, total asset turnover, and financial leverage. ROE is calculated as profit margin multiplied by total asset turnover multiplied by equity multiplier. ROI is also related to ROE, with ROE equal to ROI multiplied by total assets divided by owners' equity. DU PONT analysis can help investors better understand the drivers of a company's ROE and make more informed decisions.

1. DU PONT Analysis
By
Rahul Amritkar

2. Agenda
 What is DU PONT analysis
 Numerical Expression
 Business Significance of DUPONT
 Balance sheet example
 Relationship of ROE and ROI

3. What is DU PONT Analysis
 Started by DU PONT corporation in 1920
 Tool to examine company’s Return on Equity (ROE)
 Used to analyze a company's ability to increase its return on equity
 Focus on three components
 Profit margin
 Total Asset Turnover
 Financial Leverage

4. Numerical Expression
𝑅𝑒𝑡𝑢𝑟𝑛 𝑂𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑂𝐸 = 𝑃𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 ∗ 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 ∗ 𝐸𝑞𝑢𝑖𝑡𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟
𝑅𝑂𝐸 =
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
∗
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
∗
Total Assets
(Owner′s Equity)
&
𝑅𝑂𝐼 =
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑆𝑎𝑙𝑒𝑠
∗
𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Therefore, 𝑅𝑂𝐸 = 𝑅𝑂𝐼 ∗
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑂𝑤𝑛𝑒𝑟′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

5. Business Significance of DuPont
 Can be used to make more Informed decisions
 Understanding company position better
 What is the reason for Increased ROE? Operating Efficiency or Improved
asset utilization
 Implies whether margins are higher or company is making better use of
assets or both

6. Balance Sheet Example of Reliance industries Ltd
Year 2017 2016
Profit margin % 12.9842 11.75898
Total Asset Turnover % 44.26644 50.939
Equity Multiplier 1.896363 1.905769
ROE % 10.89961 11.41538
ROI % 5.747642 5.989906
Year 2017 has better operating margin which is good
sign for the organization
Reliance Industries Ltd
Year 2017 2016
Profit for Year 31425 27417
Revenue from
Sales/Operations 242025 233158
Total Assets 546746 457720
Total Shareholder Fund 288313 240176

7. Relationship of ROE and ROI
 Looking at the ROE and ROI number it is visible that
 The investor money contributed to 10.89% (ROE)profit
 Whereas the profit came down o 5.89% (ROI) because of borrowed funds
 Leverage plays an important role in the increase or decrease of ROE