DU PONT ANALYSIS

The factors that caused the change in return on equity for each company are:
1) Net Profit Margins
2) Total Asset Turnover
3) Leverage (or) Equity Multiplier

3- Step DuPont Model:

ROE = PAT/SALES * SALES /TOTAL ASSESTS * TOTAL ASSETS/NET WORTH
Return on Equity for Bharat Petroleum from 2011-2014 have been calculated by
using Du Pont Analysis:
1) 2011
Net Profit margin = 0.01; TA turnover = 2.71 and Equity Multiplier = 3.97
ROE = 10.77 %
2) 2012
Net Profit margin = 0.0061; TA turnover = 3.23 and Equity Multiplier = 4.66
ROE = 9.1 %
3) 2013
Net Profit margin = 0.011; TA turnover = 3.58 and Equity Multiplier = 4.02
ROE = 15.83 %
4) 2014
Net Profit margin = 0.0156; TA turnover = 3.59 and Equity Multiplier = 3.72
ROE = 20.8 %

1) The net profit margin (or net margin) of a company reflects

managements pricing strategy by showing how much earnings they can
generate from a single dollar of assets. Companies with high profit
margins indicate that they have a highly proprietary product or service
that carries with it a price premium.
From the above statistics, Bharat Petroleum has the highest Net profit margin of
0.0156 in the year 2014 whereas the net profit margin was lowest in 2012 of
0.0061. Bharat Petroleum hardly makes any profit.

2) Low-margin firms tend to have high asset turnover, as they rely on high
sales volume to generate profits. The majority of high-margin companies
also tend to have low asset turnover. This is because a firm can only do a
certain amount of business without incurring additional costs that would
adversely impact profit margins.
From the above statistics, Bharat Petroleum has the lowest Total asset turnover
ratio of 2.71 in the year 2011 and has the highest T.A turnover ratio of 3.59 in
2014.

3) The equity multiplier is a measure of financial leverage. A higher equity

multiplier indicates higher financial leverage, which means the company
is relying more on debt to finance its assets.
ROE can be boosted by a company by raising the equity multiplier but if
a company is leveraged sufficiently and takes on additional debt then it
might end bankrupt.
From the above statistics, Bharat Petroleum has the highest equity multiplier of
4.66 in 2012 which implies that it had a lot of debt and has the lowest equity
multiplier of 3.72 in 2014. Some debt has been repaid as the ratio has
decreased from 4.02 to 3.72.