Explain the DuPont identity. How is it used in finance? Locate the financial statements for two
firms in the same industry. Calculate all four terms of the DuPont identity, and present the results
but do not analyze them.
PLEASE DO NOT POST PICTURES. WRITE IR DOWN. THANK YOU.
Solution
As per the Du Pont Identity,
ROE= Profit Margin* Total asset turnover * Equity multiplier
= (Net Income/Revenues) * (Revenues/Total Assets) * (Total Assets/ Shareholders\' Equity)
It helps the managers to understand what is driving the ROE and pinpoints the exact determinant
of ROE. It helps the management to understand why the company is weak or strong.
APPLE INC- 30 Sep 2017- Source:NASDAQ
ROE= (48,351,000/229,234,000) * (229,234,000/ 375,319,000) * (375,319,000/134,047,000)
=48,351,000/ 134,047,000
=36.07%
HP Enterprise Company- 31/10-2017-Source-NASDAQ
ROE= (344000 /28,871,000)* (28,871,000/61406000) * (61406000/23466000)
=1.47%.
Trauma-Informed Leadership - Five Practical Principles
Explain the DuPont identity. How is it used in finance Locate the f.pdf
1. Explain the DuPont identity. How is it used in finance? Locate the financial statements for two
firms in the same industry. Calculate all four terms of the DuPont identity, and present the results
but do not analyze them.
PLEASE DO NOT POST PICTURES. WRITE IR DOWN. THANK YOU.
Solution
As per the Du Pont Identity,
ROE= Profit Margin* Total asset turnover * Equity multiplier
= (Net Income/Revenues) * (Revenues/Total Assets) * (Total Assets/ Shareholders' Equity)
It helps the managers to understand what is driving the ROE and pinpoints the exact determinant
of ROE. It helps the management to understand why the company is weak or strong.
APPLE INC- 30 Sep 2017- Source:NASDAQ
ROE= (48,351,000/229,234,000) * (229,234,000/ 375,319,000) * (375,319,000/134,047,000)
=48,351,000/ 134,047,000
=36.07%
HP Enterprise Company- 31/10-2017-Source-NASDAQ
ROE= (344000 /28,871,000)* (28,871,000/61406000) * (61406000/23466000)
=1.47%
