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Overview of Dupont Analysis: Net Profit - Net Sales - Net Profit Margin

The document provides an overview and formulas for calculating common financial ratios used in DuPont analysis. These include profitability ratios like net profit margin and asset turnover ratios like total asset turnover. It also includes liquidity ratios like current ratio, leverage ratios like debt-to-equity, and shows how financial leverage can impact return on assets and return on equity through an example comparing two companies with the same sales and profits but different debt levels.

Uploaded by

Abdullah Al-Otaibi
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© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
129 views

Overview of Dupont Analysis: Net Profit - Net Sales - Net Profit Margin

The document provides an overview and formulas for calculating common financial ratios used in DuPont analysis. These include profitability ratios like net profit margin and asset turnover ratios like total asset turnover. It also includes liquidity ratios like current ratio, leverage ratios like debt-to-equity, and shows how financial leverage can impact return on assets and return on equity through an example comparing two companies with the same sales and profits but different debt levels.

Uploaded by

Abdullah Al-Otaibi
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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Overview of DuPont Analysis

1--1

Net profit __ Net Sales -I-t

t--

Total expenses

Net profit margin

+
Accounts receivable

Other current l-assets

n
I

Total current
assets

I
11

I Net sales
Total assets

I
__

x
Asset
turnover Financial leverage

Return on Net Worth

+
Fixed assets

r--

Guide to calculation of financial ratios


ProfitabiHty ratios: Formula Net income Net sales Gross margin Net sales Asset uitilization ratios: Formula Net sales Total assets Net sales .Fixed assets COGS Inventory
365

Net margin (return on sales)

Total asset 'turnover

Gross margin (%)

Fixed asset turnover

Operating margin (%)

Operating income Net sales

Inventory turnover

Days cost of sales in inventory

Inventory turnover

G,uide to calculation of tinanclal ratios


Asset utilization ratios (continued): Formula Liquidity ratios: Formula Current assets (CA) Current liabilities (CL) Cash,+MS+A/R Current liabilities Formula Assets Owner's equity Total debt Total assets Net income Total assets - CL

Accounts receivable turnover

Net sales Accounts receivable

Current ratio

Add test (quick ratio) Days of sales in accounts receivable Accounts receivable Sales per day

Leverage ratios:

Days cost of sales in


payables

Accounts
COGS

payab:le per day

Assets/equity Total liabilities to assets Other: Return on capital

Impact of financial leverage on key ratios

Company Total Assets Current Assets Current Liabilities Debt Equity Sales PBIT Interest@15% PBT Tax@20% PAT RoA RoE Asset Turnover (S/A) Financial Leverage (AlE)

1,000 500 500 0 500 2,000 200 0 200 40 160 16% 32% 2.0 2.0

1,000 500 500 300 200 2,000 200 30 170 34


136

13.6% 68% 2.0 5.0

Companies A and B have the same sales and operating profit, but very different leverage (A has no debt, B has high debt). DuPont analysis shows this in terms of RoA (higher for A, since there is no interest) and RoE (higher for B, since the equity is a much smaller percentage of the Equity plus Liabilities total).

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