DuPont Analysis ROE/ROA Calculation to analyze the company fundamental performance

  

DuPont Identity or DuPont Model Formula

Profit Margin = Net income / Net Sales

Total Asset Turnover = Net Sales / Total Assets

Financial Leverage = Total Assets / Total equity

Return on Equity (ROE) = Profit Margin x Total Asset Turnover x Financial Leverage

Return on Assets (ROA) = Profit Margin x Total Asset Turnover

Example

  Year1 year2
Net Income $1000 $1200
Net Sales $10,000 $10,000
Profit Margin 0.1 0.12
Net Sales $10,000 $10,000
Total Assets $5,000 $4,800
Turnover 2 2.08
Total Assets $5,000 $4,800
Equity $2,000 $2,000
Financial Leverage 2.5 2.4
ROE 50% 60%

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