The document discusses using the DuPont analysis method to measure an organization's return on equity (ROE). It explains that ROE is calculated by multiplying profit margin, asset turnover, and equity multiplier. The DuPont method breaks down ROE into its components to determine if high or low ROE is due to profitability, asset use efficiency, or financial leverage. Two sample companies are provided with data over multiple years to demonstrate calculating ROE and its components using the DuPont analysis method.

1. ⃝ Presented By:
Students of
Osama Bashir Soomro

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

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

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

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

7. Profit margin
⃝ Measures Profitability
⃝ Net Profit / Sales

8. ⃝ Measures Asset efficiency
⃝ Sales / Total Assets

9. ⃝ Measures Financial leverage
⃝ Total Asset / Shareholders' Equity

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

11. 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. ⃝ 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%

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%