IV: Dupont Analysis: Return On Equity Ratio
IV: Dupont Analysis: Return On Equity Ratio
IV: Dupont Analysis: Return On Equity Ratio
The Dupont analysis also called the Dupont model is a financial ratio based on
the return on equity ratio that is used to analyze a company’s ability to increase its
return on equity. In other words, this model breaks down the return on equity ratio
to explain how companies can increase their return for investors.
The Dupont analysis looks at three main components of the ROE ratio.
Profit Margin
Total Asset Turnover
Financial Leverage
profit
margin
total
asset
turnover ROE
financial
leverage
ROE
ROA DR
ROS AT
ROE =ROA
1 – DR
ROA = ROS x AT
Dupont Analysis
2016 2017 2018
cost of sale 26,513,435,310,686 29,588,446,699,863 32,627,544,285,893
selling expense 650,161,156,589 1,446,841,604,384 1,426,024,833,322
general and administration 312,759,691,123 370,150,098,282 418,418,135,868
expense
depreciation 0 0 0
financial expenses 20,775,323,891 50,027,658,964 123,171,219,786
income tax benefit 821,161,839,333 13,084,896,507 66,364,907,398
net other income 36,021,775,626 7,838,020,580 3,533,606,116
cash and cash equivalents 1,880,612,291,229 2,382,294,145,898 2,540,016,444,290
account receivable(short-term
+ long term) 1,644,771,674,369 2,475,598,419,697 771,491,328,015
inventory 395,709,326,162 388,093,755,215 441,938,225,352
fixed assets 2,052,019,379,902 1,840,303,606,752 1,626,479,824,180
long-term investment 3,760,530,037,279 3,810,074,657,892 3,662,586,585,828
ROE
ROE
- According to the table: ROA in 2011 reached 19.68% , decrease 8.63% compared
to 2017(28.31%) , proving that the company’s operation was not effective
ROE decrease 8.63%
Impact of debt ratio(DR)
SABECO 2016 2017 2018
DR 8% 14.26% 2.7%
- From the table above, SABECO has the highest debt-to-equity ratio which is
14.26% in 2017, it has lower debt-to-equity ratio which is 2.7%in 2018. In 2018
the ratio was 2.7% which nearly 3 to meant can considered that the SABECO is
use more equity and less borrowings or debt as source of financing or also can
said that this company funds with an even mix of debt and equity to financing.
- According to the table of ROA:
In 2017:
- ROA of SABECO is 28.31% mean that 100 VND of investment assets will
generate 28.31 VND of profit after tax.
- Suppose that company does not use debt , its ROE is 28.31%, but in fact 2017,
ROE of conpany is 40.87%, its showed that the company’s debt usage in 2017
had a positive effect causing ROE ti increase 12.56%.
In 2018
- ROA is 19.68% mean that 100VND of investment assets will generate 19.68
VND of profit after tax.
- Suppose that company does not use debt , ROE is 19.68%,but according to data,
the ROE of 2018 was reached 27.33%, it proves that the company has use its debt
effectively causing ROE increase 7.65%
So , we can see that in 2018 company use debt was less effective than 2017
Impact of DR to ROE causing ROE increase 12.56% - 7.56%= 5%
Showed that
- Impact of ROA causing ROE decrease 8.63%
- Impact of DR causing ROE increasing 5%
So , the combined impact of 2 factors , ROE in 2018 decreased