Dupont Analysis and Equity Multiples

1. Calculate the return on assets for Delta and Spirit, then break each ratio down into its
component parts. (Everything below is in millions.)
Delta Spirit
12/31/2019 12/31/2018 12/31/2019 12/31/2018
Revenue 47,007 44,438 3,830 3,323
Net Income 4,767 3,935 335 156
Assets 64,532 60,266 7,043 5,165

𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 = = ∗ 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

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 Date Delta ROA Spirit ROA Delta AT Spirit AT Delta PM Spirit PM

12/31/2019 7.64% 5.49% 0.75 0.63 10.14% 8.75%

12/31/2020 -18.14% -5.55% 0.25 0.23 -72.45% -23.68%

12/31/2021 0.39% -5.58% 0.41 0.38 0.94% -14.63%

12/31/2022 1.82% -6.25% 0.70 0.57 2.61% -10.93%

12/31/2023 6.32% -4.81% 0.80 0.58 7.94% -8.34%

Excel Case Study

2. Look at the pivot table that calculates the average ROA, PM, and AT of each industry (as
defined by NAICS 2 digit code) in 2022. Add in a count of how many firms are in each
industry.
a. Which industries are the highest and lowest performing for each of the following
performance indicators in 2022?
Ratio Highest Lowest
Asset turnover

Profit margin

Return on Assets

b. Explain the patterns you see above.

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3. Look at the pivot table that calculates the average ratio for each firm over the last two
years. Then sort based on highest ROA to lowest ROA.
a. Which firm in the S&P 500, has the highest average return on assets over the last
two years? Are you surprised? What drives this?

b. Is the ROA consistently high over the last two years? What is the trend?

c. Change the filter to look at the most recent two years pre pandemic (2018 and
2019). Which company had the highest average return on assets pre pandemic?
What drives this?

d. Now include all of the last five years. Compare and contrast the two most
profitable firms over the last five years.

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 e. Verisign has had strong growth over the last five years. To better understand this
growth, I created a common sized income statement for Verisign to allow for easy
comparison over the years. What do you notice?

Versign describes itself as “a global provider of domain name registry services and internet infrastructure,
enabling internet navigation for many of the world’s most recognized domain names. We enable the security,
stability, and resiliency of key internet infrastructure and services, including providing root zone maintainer
services, operating two of the 13 global internet root servers, and providing registration services and
authoritative resolution for the .com and .net top-level domains (“TLDs”), which support the majority of
global e-commerce.”

12 Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2022 2021 2020 2019 2018
Income Statement USD ($) $ in Thousands
Revenues $ 1,424,900 $ 1,327,600 $ 1,265,100 $ 1,231,661 $ 1,214,969
Costs and expenses:
Cost of revenues 14.1% 14.5% 14.2% 14.7% 15.8%
Research and development 6.0% 6.1% 5.9% 4.9% 4.8%
Selling, General and
Administrative 13.7% 14.2% 14.7% 15.0% 16.3%
Total costs and expenses 33.8% 34.7% 34.9% 34.5% 36.8%
Operating income 66.2% 65.3% 65.1% 65.5% 63.2%
Interest expense -5.3% -6.3% -7.1% -7.4% -9.5%
Non-operating income, net 0.9% -0.1% 1.3% 3.5% 6.3%
Income before income
taxes 61.8% 58.9% 59.3% 61.6% 60.0%
Income tax (expense) benefit -14.5% 0.2% 5.1% -11.9% -12.1%
Net income 47.3% 59.1% 64.4% 49.7% 47.9%

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 f. In comparison, analyze the root cause of the changes in Kraft Heinz’s profit
margin over the five years pre-pandemic.
12 Months Ended
Dec. 28, Dec. 29, Dec. 30, Jan. 03,
Dec. 31, 2016
2019 2018 2017 2016
USD ($) $ in Millions
Net sales $ 24,977 $ 26,268 $ 26,232 $ 26,487 $ 18,338
Cost of products sold 67.4% 66.0% 63.0% 63.8% 68.6%
Gross profit 32.6% 34.0% 37.0% 36.2% 31.4%
Selling, general and administrative 12.7% 12.1% 11.2% 13.0% 17.0%
Goodwill impairment losses 4.8% 26.7% 0% 0% 0%
Intangible asset impairment losses 2.8% 34.0% 0% 0% 0%
Operating income 12.3% -38.8% 25.8% 23.2% 14.4%
Interest expense 5.4% 4.9% 4.7% 4.3% 7.2%
Other expense/(income), net -3.8% -0.6% 0.0% -0.1% 1.7%
Income/(loss) before income taxes 10.7% -43.1% 21.1% 19.0% 5.5%
Provision for/(benefit from) income
taxes
2.9% -4.1% -20.8% 5.2% 2.0%
Net income/(loss) 7.7% -39.0% 41.9% 13.8% 3.5%

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 4. Use the following charts to understand the difference between ROE and ROA as well as
the benefit of leverage.
a. Suppose the company below earns $16 before paying interest. The liabilities
accrued interest at an annual rate of 8%.

Assets = Liabilities + Equity

Invested Values $100 = $50 + $50
Pre-Interest Income
Earned

Interest Expense
Distributed

Net Income Earned

Return on Investment
(after interest)

b. Suppose the company below earns $2 before paying interest. The liabilities still
accrue interest at an 8% annual rate.
Assets = Liabilities + Equity
Invested Values $100 = $50 + $50
Pre-Interest Income
Earned

Interest Expense
Distributed

Net Income Earned

Return on Investment
(after interest)

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 5. Calculate Delta and Spirit’s financial leverage and ROE in 2019. (Everything below is in
millions.)
Delta Spirit
12/31/2019 12/31/2018 12/31/2019 12/31/2018
Revenue 47,007 44,438 3,830 3,323
Net Income 4,767 3,935 335 156
Assets 64,532 60,266 7,043 5,165
Equity 15,358 13,687 2,261 1,929
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑅𝑂𝐸 = = ∗
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠 ′ 𝐸𝑞𝑢𝑖𝑡𝑦

Date Delta ROA Spirit ROA Delta ROE Spirit ROE

12/31/2019 7.64% 5.49% 32.82% 16.00%
12/31/2020 -18.14% -5.55% -146.64% -19.01%
12/31/2021 0.39% -5.58% 10.33% -21.66%
12/31/2022 1.82% -6.25% 25.18% -30.07%
12/31/2023 6.32% -4.81% 52.12% -33.07%

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6. Return to your firm level pivot table and add in data for ROE and financial leverage.
a. How can Verisign be the most profitable firm and have a negative ROE? How do
you interpret its negative ROE?

b. On the other hand, how do you interpret Wynn Resorts LTD’s ROE?

c. Lastly, how do you interpret Moderna’s negative ROE in 2018 – 2020? Why do
you think Moderna has such a low amount of financial leverage?

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 7. Notes on Market versus Balance Sheet/Book Value of Equity.

Average Average Average Average Average Average Average

2018-2021 of ROA of AT of PM of ROE of FL of MTB of PE

AMAZON.COM 7.41% 1.43 5.27% 26.62% 3.63 15.39 69.58

TARGET CORP 9.41% 1.94 4.83% 34.53% 3.64 5.61 16.67

WALMART
INC 5.18% 2.32 2.25% 15.78% 3.02 4.42 30.49

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 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
𝑴𝒂𝒓𝒌𝒆𝒕 𝒕𝒐 𝑩𝒐𝒐𝒌 =
𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
𝑆𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠′ 𝐸𝑞𝑢𝑖𝑡𝑦
◦ 𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
◦ Market Value per Share = Current Stock Price

𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛 𝑆𝑡𝑜𝑐𝑘

𝑷𝒓𝒊𝒄𝒆 𝒕𝒐 𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐶𝑜𝑚𝑚𝑜𝑛 𝑆𝑡𝑜𝑐𝑘

8. Calculate the following ratios for Delta and Spirit (everything below is in millions):
Delta Spirit
12/31/2022 12/31/2019 12/31/2022 12/31/2019
Equity 6,582 15,358 1,572 2,261
Shares 641.266 642.771713 108.941920 68.455011
Outstanding
Earnings per 2.07 7.32 -5.10 4.90
Share (EPS)
Closing
Stock Price
Book Value
per Share
Market to
Book
Price to
Earnings

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