In: Finance
In your initial post, provide your calculation for one year of ROE using the DuPont Identity. In your initial post you should also critically analyze the advantages and/or disadvantages to using the DuPont Identity as a tool for calculating ROE. When responding to your peers, perform a calculation from one of the other years and identify what has changed over the years, and identify what may be influencing changes to the DuPont Identity ROE.
Annual |
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2018-09 |
2017-09 |
2016-09 |
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Income Statement |
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Revenue |
20,609 |
18,358 |
15,082 |
||
Operating Income |
12,954 |
12,144 |
9,760 |
||
Net Income |
10,301 |
6,699 |
5,991 |
||
Earnings Per Share |
4.42 |
2.80 |
2.48 |
||
Diluted Average Shares |
2,329 |
2,395 |
2,414 |
||
Balance Sheet |
|||||
Current Assets |
18,216 |
19,023 |
14,313 |
||
Non Current Assets |
51,009 |
48,954 |
49,722 |
||
Total Assets |
69,225 |
67,977 |
64,035 |
||
Current Liabilities |
11,305 |
9,994 |
8,046 |
||
Total Liabilities |
35,219 |
35,217 |
31,123 |
||
Stockholders' Equity |
34,006 |
32,760 |
32,912 |
||
Cash Flow |
|||||
Cash From Operations |
12,713 |
9,208 |
5,574 |
||
Capital Expenditures |
-718 |
-707 |
-523 |
||
Free Cash Flow |
11,995 |
8,501 |
5,051 |
ROE = profit margin * total asset turnover * equity multiplier
profit margin = net income / sales
total asset turnover = sales / total assets
equity multiplier = total assets / stockholders' equity
The advantages of DuPont Identity as a tool for calculating ROE are :
The disadvantages of DuPont Identity as a tool for calculating ROE are :
Over the years, the net profit margin has increased substantially, whereas the total asset turnover and equity multiplier have increased only slightly. Therefore, the increase in ROE is mostly due to increase in profit margin