Dupont Analysis Pace University杜邦分析大学.pptxVIP

Dupont Analysis Adapted by P. V. Viswanath (with permission) from /teacher/swinyard/Retailing/ P.V. Viswanath 2 The Du Pont Identity ROA = NI/ TA ROA = (NI/ Sales)*(Sales / TA) ROA = (Net Profit Margin)*(Asset Turnover) ROE = NI / TE ROE = (NI/Sales)*(Sales/TA)*(TA/TE) = Net Profit Margin*Asset Turnover*Equity Multiplier Net Profit margin is a measure of the firm’s operating efficiency – how well it controls costs Total asset turnover is a measure of the firm’s asset use efficiency – how well it manages its assets Equity multiplier is a measure of the firm’s financial leverage. A firm could have a high volume/low margin strategy, which would be reflected in high asset turnover but low profit margins or the reverse. The firm’s marketing (e.g. branding) and other strategies have to be commensurate. Illustrations of the Dupont Identity The Dupont identity is fairly well known as an accounting identity. However, it can also be the basis for alternative marketing strategies. Let us see how this works, as reflected in the practices of some US corporations. We start out looking at Tiffany, a jewelry retail firm and compare them with Walmart, which is another jewelry retail firm – and, according to its website, the world’s largest – but quite different.(/sustainability/9137.aspx) * Effective tax rates often differ among corporations due to different tax breaks and advantages. Source: Levy Weitz Income Statements: Wal-Mart vs Tiffany(2000, in millions) Which has the higher net margin? Wal-Mart Tiffany Net sales $ 139,208 $ 1,173 Less: Cost of goods sold $ 108,725 $ 515 Gross margin $ 30,483 $ 658 Less: Operating expense $ 22,363 $ 493 Less: Interest expense $ 950 $ 9 Total expense $ 23,313 $ 502 Net profit, pretax $ 7,170 $ 156 Less: Taxes* $ 2,740 $ 66 Tax rate